A year ago this week, the bitcoin price peaked at almost $ 20,000. Since then, the biggest bubble in financial history has exploded dramatically, with the cryptocurrency that lost 80% of its value in a bloodletting that taught a new generation of investors a painful lesson.
Bitcoin's 2017 earnings were surprising. Below $ 800 in mid-January, it had almost quadrupled by June, surpassing $ 3,000 before returning immediately to $ 2,000 in July. And then things went completely into bananas, with bitcoins flying to the sky and enjoying a 10-fold gain over a five-month period.
He could not go on, the skeptics said, and he did not. Prices have finally crashed and lately things have been particularly difficult: the bitcoins have lost 37% of their value only in the month of November, falling below $ 4000 for the first time in two years.
Other cryptocurrencies have gone even worse, recently the economist and skeptical long-term bitcoin Dr Nouriel Roubini, with each individual falling between 80 and 99%.
The biggest bubble
It had to happen. This was, as Roubini noted, the biggest bubble in history, with bitcoins enjoying a 60-fold increase in the three years before the peak. The infamous technological bubble of the end of the 1990s was a simple pussycat in comparison, with a fourfold increase over the same period of time.
Roubini's figures were taken over by Convoy Investments, based in New York; a few days before the bitcoin peak last year, the company noted that bitcoin's advance had surpassed the best-known bubble in financial history, the Dutch tulip mania of the seventeenth century.
The cryptocurrency craze was encapsulated not only by sky-high prices but by the crazy behavior that accompanies the main bubbles. "I'm in, I'm involved," former football coach Harry Redknapp tweeted over 200,000 followers on Twitter, adding that he was "pretty excited" about mobile cryptocurrency. Days before his fight with Conor McGregor, boxing champ Floyd Mayweather was hypothesizing his involvement in a first coin offering (ICO), adding that people could call him Floyd & Crypto & # 39; Mayweather.
A lot of other celebrities, ranging from the reality TV star Paris Hilton, former boxer Mike Tyson and the tough guy from Hollywood Steven Seagal also boarded the cryptocurrency train. A New York Times title, "Everyone is getting incredibly rich and you're not", has perfectly captured the prevailing mood.
FOMO – the fear of losing – has led to all kinds of crazy stock price movements. After announcing that it was buying a revenue-free cryptocurrency company, the Longfin finance company rose more than 1,300 percent over a two-day period, giving it a market capitalization of over $ 3 billion. The actions of the British On-Line company increased fivefold after saying that it was changing its name to Blockchain online, while the Long Island Iced Tea shares more than quadrupled after deciding it was time to rebrand on Long Blockchain.
Bitcoin still has its devotees, who point out that the cryptocurrency has suffered numerous market incidents in the past, before ever reaching new highs. Bitcoin looked dead and buried after losing 94 percent of its value in the second half of 2011, rising from $ 32 to $ 2. It suffered a decline of 79% in 2013, rising from $ 266 to $ 54. And between November 2013 and January 2015, the bitcoin fell from $ 1.166 to $ 170, a decline of 85% that was even longer and more severe than the collapse of 2018.
Fundamentally, however, the current incident is different in two respects. Firstly, skeptics could not bet against bitcoins in the past. This changed last December, when trading started in bitcoin futures. The professional traders have finally been able to shorten the cryptocurrency and it was not a coincidence that this coincided with the higher price of the bitcoin, says the blogger of Reformed Broker and the managing director of Ritholtz Wealth Management Josh Brown. That was "game over", he says. "Fever is broken".
Secondly, while bitcoin prices have increased between 2011 and 2016, cryptocurrency has remained a marginal product associated with geeks, libertarians and criminals. Bitcoin entered the financial mainstream in 2017, however, when it seemed that everyone and their mother were interested in participating in the action.
The bubbles burst when there is no one to buy, when everyone has been attracted to the mania. In this sense, Barclays argued in its equity study at the start of this year that the craze of cryptocurrency is similar to the spread of an infectious disease that peaked.
For skeptics like Roubini, the fact that bitcoin is the biggest bubble in history makes it probable that it will end up suffering the greatest failure in history. Roubini said last month that the bitcoin was going to get to zero. The economist Nobel Eugene Fama, not known for making extreme predictions, made the same prediction. Just a few weeks before the bitcoin peak last December, Vanguard's founder, John Bogle, mocked that the price would fall to $ 100.
The problem, as many observers have pointed out, is that bitcoin is essentially impossible to evaluate as it does not produce income or earnings. This made the bubble perfect – when something is impossible to evaluate, a goal of $ 500,000 may seem logical as a $ 500 goal.
For the same reason, there is no obvious plan now that prices are falling. In a normal market crash, overvalued assets will eventually become undervalued; bargain hunters will begin to nibble when prices become quite cheap and prices will eventually fall. There is, as Bogle warned a year ago, "nothing to support bitcoins except the hope that you will sell it to someone for more than you paid."
The disappointed hordes who have acquired the clamor can not say they have not been warned. "Avoid bitcoin like the plague", warned Bogle. "Squared rat poison," said Warren Buffett. "Probably to go to zero," said Eugene Fama. "It's a wonderful story," said former Nobel laureate Robert Shiller, before adding, "if only it were true." "A bubble shrouded in techno-mysticism inside a cocoon of libertarian ideology", scoffed Paul Krugman in a New York Times piece titled "Bubble, Bubble, Fraud and Trouble".
Even Wall Street, which played an important role in influencing dangerous market bubbles in the recent past (in particular, during the last years' technology bubble & the real estate bubble that led to the global financial crisis of the 2008), had the will to drive well. Last December a CNBC poll of 44 Wall Street economists and strategists found that only 2% believed that the bitcoin rating was based on fundamentals, with 80% describing it as a bubble. Jamie Dimon, head of JPMorgan, has notoriously labeled Bitcoin a fraud; The CEO of Credit Suisse Tidjane Thiam described it as the "definition of a bubble"; even Jordan Belfort, the infamous "Wall Street Wolf", warned investors, saying that the bitcoin was a "fraud".
The Bitcoin bulls rejected these warnings and for a long time they were widely rewarded for doing so. Everything changed a year ago this week, when the bitcoin bubble finally exploded. The 80 percent down in the last 12 months is just the beginning, says Nouriel Roubini; bitcoin and all other cryptocurrencies are on a "funeral march".