Bitcoin: If currency crashed, plunge would harm its investors but not economy

in bitcoin •  7 years ago 

If bitcoin, which skeptics say is a bubble, suffers the same fate as past financial manias, look out below.

Fears of a bitcoin crash are growing amid an early-year plunge that has wiped out 50% of the digital currency's value since its December peak of $19,500 per coin.

"There is significant precedent to suggest that the more rapid the appreciation, the more rapid the depreciation," says Scott McGann, a finance lecturer at San Diego State University.

Bitcoin's wild ride continued Monday when it was down more than 11% at $10,050 after cratering last week to a seven-week low of $9,200.

History is filled with examples of big busts after gargantuan gains. The Nasdaq fell nearly 80% after the dot-com stock bubble burst in 2000. The Dow tumbled 86% following the 1929 stock market crash. The Dutch tulip bulb craze in the 1600s had a similar bad ending.

If the pain following past popped bubbles is a guide, bitcoin believers who cheered the cryptocurrency's 1,400% gain last year should brace for further declines.

The reason: The bitcoin bubble is the biggest ever. Bitcoin's value has risen 65-fold, which tops the 50-fold rise of tulips in the 1630s and tech stocks' four-fold rise in the 1990s, according to Convoy Investments, a New York-based investment firm.

"Historically, most major asset bubbles tend to lose close to 80% of their peak value," says Howard Wang, co-founder of Convoy Investments.

Recent bitcoin turbulence has been sparked by fears of a regulatory crackdown by foreign governments.

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  

Hi! I am a robot. I just upvoted you! I found similar content that readers might be interested in:
https://www.usatoday.com/story/money/2018/01/23/bitcoin-if-currency-crashed-plunge-would-harm-its-investors-but-not-economy/1041093001/

hey Azzamkhalidi good post I will resteem.
But some critique as well.
You claim that the multiplikation of Price makes a bubble big or small. And you say that big (high x-fold increase) makes the system instable

but can you realy read this from history? I see only the rule that generaly said: big and fast increases are followed by a even more rapid decrease in Price (called crash). But to what Point such a bubble can grow or what indicates that it will pop in near future <-- about this, there is little to no evidence (I only know of the work of Sornette et al.)