Crypto World Responds to Allegation of Bitcoin Bubble
Earlier this week, a Bank of America Merrill Lynch (BAML) research team alleged that the Bitcoin bubble was finally bursting. To prove their theory, the team provided graphic data, comparing the performance of Bitcoin over the years to some of the world’s most famous “bubbles”.
The BAML team tracked the performance of famous “price asset bubbles” – the Mississippi Company, the South Sea Company, the Dutch tulips, gold and the 1929 crash, and then compared it to the course that Bitcoin has taken so far.
False Claims & Incorrect Data
Experts in the cryptocurrency world, however have taken exception to this data, stating that it is untrue – both in terms of the history of Bitcoin and the history of bubbles.
First of all, data shows that Bitcoin, which rose to its highest price of $20,000 in December 2017, is currently trading at a price of about $6900, which is about a 65% drop for the cryptocurrency. The so-called bubbles that BAML drew parallels with fell more than 80%, according to data from Investopedia. And the tulip prices dropped 99% after the mania ended, according to data from Professor Earl A Thompson from UCLA.
Additionally, this is not the first time that Bitcoin has seen such strong volatility. From June 2011 to November 2011, the price of Bitcoin fell from $32 to $2, which was a 94% nosedive – that is when the bubble should have burst. And then, in November 2013, BTC plunged 87%. Then again, in April of 2014, the cryptocurrency’s price plummeted by 83%.
Another point to be noted is that the comparison is not apples to apples. Bitcoin is a digital currency, meant to be used instead of traditional fiat currencies. All the other “bubbles” related to physical assets and traditional financial markets.
Another Reason for Bitcoin’s Bubbliness
According to Bloomberg, reasons for the cryptocurrency’s extreme volatility are because of its lack of liquidity as well as its relative newness as an asset class. Another reason that most people don’t give credence to is the fact that it is hard to bet against Bitcoin.
At the end of the day, the media seems to continuously report the “death” of Bitcoin. 99Bitcoins keeps a list of Bitcoin obituaries, according to which, Bitcoin has died 278 times so far. In fact, Bitcoin Foundation director Jon Matonic and other Twitter users have questioned whether Bitcoin is the bubble or the pin.