Bitcoin bubble speculation

Bitcoin and other cryptocurrencies have been identified as speculative bubbles by several laureates of the Nobel Memorial Prize in Economic Sciences, central bankers, and investors. After another surge on 3 January with $34,, Bitcoin crashed by 17 percent the next day.
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UBS suggested investors look for assets that are less volatile and that have "more clear valuation models. They emphasized traders should act with "extreme caution with regard to crypto speculation" because swings in "investor sentiment" or new "regulatory crackdowns" could pose significant risks. The chief investment office offered alternative investments for clients including semiconductor shares to take advantage of crypto-mining and gold for downside protection.

The UBS team did note institutional investors' recent entry into cryptocurrency has caused a boom but cautioned investors about the volatility that it may bring to the asset.

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In a concluding statement to the note, UBS added that in their view "speculation in crypto is a gamble, not an investment. Despite UBS' bearish view, bitcoin continues to make headlines and big returns for investors. Elon Musk also said in a tweet earlier this week that Tesla would accept the cryptocurrency as a form of payment. UBS wasn't alone this week in striking a bearish tone. Bridgewater Associates Ray Dalio said he believes the US government may end up banning cryptocurrencies altogether in an interview with Yahoo Finance. Bitcoin's limited real-world use and extreme volatility show its recent surge is still a speculative bubble, UBS Global Wealth Management says.

Will Daniel. UBS's chief investment office said in a note on Friday that speculation in bitcoin is a "gamble. As established in the code authored by Satoshi Nakamoto and released in , Bitcoin has three qualities that distinguish it from nearly all other global economies.

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In the wake of government intervention in markets in response to the COVID pandemic, the mainstream has become interested in alternatives that shelter value from policy influence. But to focus on the third quality is to focus on only part of the story.

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After all, no investor is going to buy any asset unless they are convinced they are doing so at a favorable price. So, why are Wall Street investors taking another look at Bitcoin?

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Simply put, they are betting on the long-term impact of the first two properties of the Bitcoin software on its asset price. They are betting on the idea the Bitcoin market will be volatile, yes, but they are also betting that it will be upward and cyclical. Said another way, the Bitcoin price has created relative conditions of stability that allow them and any investor to plan for the future. Above we established the technical characteristics of Bitcoin, namely that it is a software technology, a claim on which both skeptics and critics largely agree.

They reason, pessimistically, that as the Bitcoin price rises, media attention increases, new investors become irrational and older buyers cash out opportunistically.

Less discussed is what would be a reasonable counter-proposal to that claim. Namely, how was it that in each case the Bitcoin price again rebounded to create the conditions described above? Certainly one can rule out euphoria. By reducing the supply of new Bitcoins minted on a four-year cadence, it appears the software is setting the conditions for a four-year boom-and-bust cycle.


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Every four years, the price rises to a new all-time high, after which it declines to near, but never falls below, a price set by the top of the previous four-year period. From there, the price rises steadily up and until the supply reduction, at which point changes to its supply cause the cycle to repeat.

Bitcoin: speculative bubble or currency of the future? | CaixaBank Research

If this pattern is to continue, we are about to enter a period where Bitcoin will soon hit new all-time highs for yet a third time, setting a price level that will then be followed by another four-year cycle of predictable performance. You might be saying this all sounds interesting, but it remains predicated on future events.

That reaction is understandable. I personally refrained from buying Bitcoin until on the basis of the view that Bitcoin was a bubble or that it would be replaced by some better technology , and I paid a penalty spending more dollars to acquire Bitcoins later. You might, too. All this is to say that what I am trying to introduce to this discussion is context that removes Bitcoin from the lens of traditional markets journalism.

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Bitcoin is not a stock, bond or government currency. It is an emergent scientific phenomena and it should be understood by applying the scientific method. In that context, observers find themselves in the middle of two competing hypotheses. One defines the Bitcoin phenomena solely through the lens of external events, and continues to present a version of reality that it will go to zero that is at odds with 12 years of data.

They argue that as the Bitcoin economy emerges, its asset price will rise, and that the true value of the Bitcoin system and its asset will be orders of magnitude above current levels. One must be proved right, and the other proved wrong, owing to the fact that they are mutually opposed. Original art via Tommy Marcheschi.