Cryptocurrency bubble

Bitcoin price bubbles in 2011, 2013 and 2017

Predictions of a collapse of a speculative bubble in cryptocurrencies have been made by numerous experts in economics and financial markets.

Bitcoin and other cryptocurrencies have been identified as economic bubbles by at least eight Nobel laureates in economics, including Paul Krugman,[1] Robert J. Shiller,[2] Joseph Stiglitz,[3] Richard Thaler,[4] James Heckman,[5] Thomas Sargent,[5] Angus Deaton,[5] and Oliver Hart.[5] Professor Nouriel Roubini of New York University has called Bitcoin the "mother of all bubbles."[6] Central bankers, including former Federal Reserve Chairman Alan Greenspan,[7] investors such as Warren Buffett[8][9] and George Soros[10] have stated similar views, as have business executives such as Jamie Dimon[11][12] and Jack Ma, as well as South Korean Prime Minister Lee Nak-yeon.

Bitcoin

External video
Resolved:Bitcoin Is More Than a Bubble And Here To Stay, 1:39:01, Intelligence Squared[13][14]
Fluidity Summit: Will Cryptocurrency Flourish or Fail?, 46:57, Fluidity Summit[15]

Economists

In the 2005 edition of his book Irrational Exuberance, Nobel laureate Robert J. Shiller defines a bubble as

a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others' successes and partly through a gamblers' excitement.[16]

As early as 2014 he clearly stated that bitcoin "exhibited many of the characteristics of a speculative bubble".[2] He has repeated this thesis many times and in 2017, Shiller wrote that bitcoin was the best current example of a speculative bubble.[16]

Economist John Quiggin in 2013 said "bitcoins are the most demonstrably valueless financial asset ever created."[17]

Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman claimed that in late 2013, price manipulation by one person likely caused a price spike from USD$150 to more than USD$1000.[18]

Nobel laureate Joseph Stiglitz in 2017 said "It’s a bubble that’s going to give a lot of people a lot of exciting times as it rides up and then goes down." He emphasized its use by criminals, its lack of a socially useful purpose, and said that it should be outlawed.[3]

Nobel laureate Paul Krugman wrote in 2018 that bitcoin is "a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology." He criticized it as a very slow and expensive means of payment, used mostly to buy blackmarket goods, without a "tether to reality."[1]

Nobel laureate Richard Thaler emphasizes the irrationality in the bitcoin market that has led to the bubble, demonstrating the irrationality with the example of firms that have added the word "blockchain" to their names which have then had large increases in their stock price. The extremely high volatility in bitcoin's price also is due to irrationality according to Thaler.[4]

Four Nobel laureates, James Heckman, Thomas Sargent, Angus Deaton, and Oliver Hart, appearing at a joint press conference were asked about bitcoin, and all agreed that it is a bubble. Hart cited Christopher Sims's work showing no intrinsic value to bitcoin. Heckman compared bitcoin to the Tulip bubble. Deaton pointed to bitcoin's use by criminals.[5]

Professor Nouriel Roubini of New York University has called Bitcoin the "mother of all bubbles." He believes that a revolution in financial technology (fintech) is now happening, but that it does not include the flawed blockchain used by bitcoin and other cryptocurrencies. Bitcoin has failed, according to Roubini, as a unit of account, a means of payment, and as a store of value, the three attributes needed by any successful currency. "Scammers, swindlers, charlatans, and carnival barkers (all conflicted insiders) have tapped into clueless retail investors’ FOMO (“fear of missing out”), and taken them for a ride."[19][20]

Central bankers

Early claims that bitcoin was a bubble focused on the lack of any intrinsic value of bitcoin. These claims include that of former Fed Chair Alan Greenspan in 2013. He stated "You really have to stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven't been able to do it."[7]

In 2017 Greenspan compared bitcoin to the Continental dollar, which ultimately collapsed. He said "Humans buy all sorts of things that aren't worth anything. People gamble in casinos when the odds are against them. It has never stopped anybody."[21]

Former Fed Chair Ben Bernanke (in 2015) and outgoing Fed Chair Janet Yellen (in 2017) have both expressed concerns about the stability of bitcoin's price and its lack of use as a medium of transactions.[22][23]

The head of the Bank of International Settlements, Agustin Carstens said that bitcoin is a speculative bubble and that the general public should be protected from its effects. It is "a combination of a bubble, a Ponzi scheme and an environmental disaster."[24]

David Andolfatto, a vice president at the Federal Reserve Bank of St. Louis, stated, "Is bitcoin a bubble? Yes, if bubble is defined as a liquidity premium." According to Andolfatto, the price of bitcoin "consists purely of a bubble."[25]

Comparisons of bitcoin to the tulip mania of seventeenth-century Holland have been made by the vice-president of the European Central Bank, Vítor Constâncio[26] and by former president of the Dutch Central Bank, Nout Wellink.[27] In 2013, Wellink remarked, "This is worse than the tulip mania [...] At least then you got a tulip [at the end], now you get nothing."[27]

Investors and executives

American investor Warren Buffett warned investors about bitcoin in 2014, "Stay away from it. It's a mirage, basically."[8] He repeated the warning in 2018 calling bitcoin "probably rat poison squared." He believes that bitcoin is a non-productive asset. "When you're buying nonproductive assets, all you're counting on is the next person is going to pay you more because they're even more excited about another next person coming along."[28]

Buffett's close associate Charlie Munger is even more direct in his distain. Trading cryptocurrencies is "just dementia" according to Munger. Bitcoin is "worthless" and a "turd."[29]

John Bogle, the founder of The Vanguard Group, is also very direct "Avoid bitcoin like the plague. Did I make myself clear? .... There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it."[30]

George Soros, answering an audience question after a speech in Davos, Switzerland in 2018, said that cryptocurrencies are not a store of value but are an economic bubble. Nevertheless, they may not crash due to the rising influence of dictators trying to "build a nest egg abroad".[10]

James Chanos, known as the "dean of the short sellers", believes that bitcoin and other cryptocurrencies are a mania and useful only for tax avoidance or otherwise hiding income from the government. Bitcoin "is simply a security speculation game masquerading as a technological breakthrough in monetary policy."[31]

Two lead software developers of bitcoin, Gavin Andresen[32] and Mike Hearn,[33] have warned that bubbles may occur.

On 13 September 2017, Jamie Dimon compared bitcoin to a bubble, saying it was only useful for drug dealers and countries like North Korea.[11] However, in a January 2018 interview Jamie Dimon voiced regrets about his earlier Bitcoin remarks, and noted "The blockchain is real, You can have cryptodollars in yen and stuff like that. ICOs ... you got to look at everyone individually."[34][12]

On 29 Novemvber 2017, South Korean Prime Minister Lee Nak-yeon raised concerns that cryptocurrencies were corrupting the youth of South Korea, remarking “There are cases in which young Koreans including students are jumping in to make quick money and virtual currencies are used in illegal activities like drug dealing or multi-level marketing for frauds”.[35]

Alibaba chairman Jack Ma has different views on blockchain and bitcoin,. "There is no bubble for blockchain, but there's a bitcoin bubble."[36]

Altcoins

A January 2018 article by CBS cautioned about a cryptocurrency bubble and fraud, citing the case of BitConnect, a British company, which received a cease-and-desist order from the Texas State Securities Board. BitConnect had promised very high monthly returns but hadn't registered with state securities regulators or given their office address.[37]

Initial coin offerings

Wired noted in 2017 that the bubble in initial coin offerings (ICOs) was about to burst.[38] Some investors bought ICOs in hopes of participating in the financial gains similar to those enjoyed by early Bitcoin or Ethereum speculators.[39]

In June 2018 Ella Zhang of Binance Labs, a division of the cryptocurrency exchange Binance, stated that she was hoping to see the bubble in ICOs collapse. She promised to help "fight scams and sh*t coins."[40]

See also

References

  1. 1 2 Krugman, Paul (January 29, 2018). "Bubble, Bubble, Fraud and Trouble". New York Times. Retrieved June 7, 2018.
  2. 1 2 Shiller, Robert (1 March 2014). "In Search of a Stable Electronic Currency". New York Times. Archived from the original on 24 October 2014. Retrieved 31 October 2014.
  3. 1 2 Costelloe, Kevin (November 29, 2017). "Bitcoin 'Ought to Be Outlawed,' Nobel Prize Winner Stiglitz Says". Bloomberg. Retrieved June 5, 2018. It doesn’t serve any socially useful function.
  4. 1 2 "Economics Nobel prize winner, Richard Thaler: "The market that looks most like a bubble to me is Bitcoin and its brethren"". ECO Portuguese Economy. 22 January 2018. Retrieved 7 June 2018.
  5. 1 2 3 4 5 Wolff-Mann, Ethan (April 27, 2018). "'Only good for drug dealers': More Nobel prize winners snub bitcoin". Yahoo Finance. Retrieved 7 June 2018.
  6. ↑ "Bitcoin biggest bubble in history, says economist who predicted 2008 crash".
  7. 1 2 Kearns, Jeff (4 December 2013). "Greenspan Says Bitcoin a Bubble Without Intrinsic Currency Value". bloomberg.com. Bloomberg LP. Archived from the original on 29 December 2013. Retrieved 23 December 2013.
  8. 1 2 Crippen, Alex (14 March 2014). "Bitcoin? Here's what Warren Buffett is saying". CNBC. Archived from the original on 13 January 2017. Retrieved 11 January 2017.
  9. ↑ Cheng, Evelyn (7 June 2018). "Warren Buffett and Jamie Dimon on bitcoin: Beware". CNBC. Retrieved 7 June 2018.
  10. 1 2 Porzecanski, Katia (January 25, 2018). "George Soros: Bitcoin is a bubble, Trump is a 'danger to the world'". Globe and Mail. Bloomberg News. Retrieved 7 June 2018.
  11. 1 2 "JPMorgan CEO doubles down on trashing bitcoin". Archived from the original on 24 September 2017. Retrieved 23 September 2017.
  12. 1 2 Hackett, Robert (January 9, 2018). "No, JPMorgan Chase CEO Jamie Dimon Has Not Changed His Stance on Bitcoin". Fortune. Meredith Corporation.
  13. ↑ "Bitcoin Is More Than a Bubble And Here To Stay". Intelligence Squared. April 23, 2018. Retrieved May 12, 2018.
  14. ↑ Hankin, Aaron. "Business moguls beaten in 'bitcoin bubble' debate". Market Watch. Retrieved May 20, 2018.
  15. ↑ "Fluidity Summit: Will Cryptocurrency Flourish or Fail?". Fluidity Summit. May 15, 2018. Retrieved June 8, 2018.
  16. 1 2 Shiller, Robert J. (October 19, 2017). "Three Questions: Prof. Robert Shiller on Bitcoin". Yale Insights. Yale School of Management. Retrieved 7 June 2018.
  17. ↑ Quiggin, John (16 April 2013). "The Bitcoin Bubble and a Bad Hypothesis". The National Interest. Archived from the original on 22 October 2014. Retrieved 31 October 2014.
  18. ↑ Biggs, John. "Researchers find that one person likely drove Bitcoin from $150 to $1,000". TechCrunch. Archived from the original on 15 January 2018. Retrieved 15 January 2018.
  19. ↑ Roubini, Nouriel (January 29, 2018). "Opinion:Bitcoin is the mother of all Bubbles, Roubini says". MarketWatch. Project Syndicate. Retrieved 10 June 2018.
  20. ↑ "Bitcoin biggest bubble in history, says economist who predicted 2008 crash".
  21. ↑ Moyer, Liz (6 December 2017). "Greenspan compares bitcoin to Colonial America currency that eventually became worthless". CNBC. Retrieved 7 June 2018.
  22. ↑ Phillips, Matt (November 19, 2015). "Ben Bernanke on bubbles, bitcoin, and why he's not a Republican anymore". Quartz. Retrieved 10 June 2018.
  23. ↑ "What's Blowing Up the Bitcoin Bubble?". Knowledge@Wharton. 4 January 2018. Retrieved 10 June 2018.
  24. ↑ "Central banker takes stab at bitcoin 'bubble'". Phys.org. AFP. February 6, 2018. Retrieved 8 June 2018.
  25. ↑ Andolfatto, David (31 March 2014). "Bitcoin and Beyond: The Possibilities and Pitfalls of Virtual Currencies" (PDF). Dialogue with the Fed. Federal Reserve Bank of St. Louis. Archived (PDF) from the original on 9 April 2014. Retrieved 16 April 2014.
  26. ↑ "Bitcoin is like Tulipmania, says ECB vice-president". The Financial Times. 22 September 2017. Archived from the original on 30 September 2017.
  27. 1 2 "Bitcoin hype worse than 'tulip mania', says Dutch central banker". The Guardian. 4 December 2013. Archived from the original on 20 March 2017.
  28. ↑ Imbert, Fred (7 May 2018). "Warren Buffett on bitcoin: It doesn't produce anything except more buyers looking to sell". CNBC. Retrieved 8 June 2018.
  29. ↑ Imbert, Fred (7 May 2018). "Berkshire's Charlie Munger: 'Bitcoin is worthless, artificial gold'". CNBC. Retrieved 8 June 2018.
  30. ↑ Grant, Nico (November 28, 2017). "Vanguard Founder Jack Bogle Says 'Avoid Bitcoin Like the Plague'". Bloomberg. Retrieved 8 June 2018.
  31. ↑ Parramore, Lynn (4 June 2018). "Jim Chanos: "Cryptocurrency is a security speculation game masquerading as a technological breakthrough"". Institute for New Economic Thinking. Retrieved 12 June 2018. ... if you say, well, fiat currency is going to bring the world down, which could, of course, happen, then I say the last thing I’d want to own is bitcoin if the grid goes down.
  32. ↑ Dan Caplinger (4 April 2013). "Bitcoin's History of Crushing Speculators". The Motley Fool. Archived from the original on 7 January 2014. Retrieved 7 January 2014.
  33. ↑ Barford, Vanessa (13 December 2013). "Bitcoin: Price v hype". bbc.com. BBC. Archived from the original on 19 December 2013. Retrieved 23 December 2013.
  34. ↑ "Jamie Dimon says he regrets calling bitcoin a fraud and believes in the technology behind it". CNBC. 9 January 2018.
  35. ↑ Lee, Su-Hyun; Popper, Nathaniel (3 December 2017). "In South Korea, the Virtual Currency Boom Hits Home". New York Times.
  36. ↑ Yang, Yingzhi (18 May 2018). "There's a bitcoin bubble, says Alibaba executive chairman Jack Ma". South China Morning Post. Retrieved 10 June 2018.
  37. ↑ "5 reasons to tread carefully in cryptocurrencies". CBS. January 5, 2018.
  38. ↑ "The ICO bubble is about to burst but that's a good thing, Expect a slowdown in ICOs in 2018, as token sales become less of a Wild West". Wired. 12 December 2017.
  39. ↑ "Explaining the new cryptocurrency bubble—and why it might not be all bad Investors are pouring tens of millions of dollars into new cryptocurrencies". Arstechnica. October 5, 2017.
  40. ↑ Russo, Camila (4 June 2018). "Binance's Venture Fund Head Is Waiting for ICO Bubble to Burst". Bloomberg. Retrieved 10 June 2018.
  • "Bitcoin Bulls and Bears". Bloomberg. 8 June 2018. Retrieved 9 June 2018.
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