Image: REUTERS/Arnd Wiegmann
The recent price escalation that both Bitcoin and other crypto-currencies are seeing keeps many operators aghast, and eager Bitcoins to some small investors. Far from confirming the solidity of an alternative currency and / or investment that still has much to prove, this unstoppable meteoric rise only opens questions and sow doubts, rather than clear them.
After all, Bitcoin is not only a crypto-currency, but also an asset, which is why it is susceptible to bubbles and landslides, just like any other asset in the market. And what interests us more in the face of today's article: it is possible to do a serious market analysis on Bitcoin as an asset that (also) is.
Is Bitcoin an asset?
I will start by pointing out that I am aware that some will be somewhat perplexed at the fact that I catalog Bitcoin as an asset, apart from being a currency by its very nature. I had an interesting discussion about Twitter over the last three years with Finantial Times economist Isabella Kaminska. Although initially Izabella categorically ruled out that Bitcoin could be considered an asset, the discussion was closed with Isabella admitting that Bitcoin could indeed be classified as an asset type. I will not reproduce here the complete chain of tweets, I will only link here the final tweet by which I pointed out to Izabella that I had come to agree with my initial statement (contrary to what she initially stated: a The annals of Twitter I refer).
I simply summarize that Bitcoin, as an element of trading that is traded in different markets, and especially as an element of value that some investors use to keep in portfolio, is after all an asset. Let us therefore start from this premise, regardless of the type of asset in which it can be cataloged based on its reliability or its inherent risk profile. And now I must admit that I always knew that at some point in the life of this crypto-currency, just like in any other asset, it would be time to write an analysis like the one we bring you today in The Blog Salmon.
The moment to speak of a bubble in Bitcoin had to arrive someday
The current moment seems appropriate to analyze this issue for various factors, but especially as regards the meteoric race that have been undertaken for a few months the quote Bitcoin. As you can read in this news, on May 19th (a little more than a week ago) Bitcoin reached the quota of $ 1,900, and pay attention to the graph of the link, because the exponential evolution shows short breath. Xataka also recently published an analysis on this. Why do you have an idea, just a few weeks ago we wrote in The Blog Salmon this analysis about a Bitcoin that had broken the barrier of the price of the ounce of gold to exceed $ 1229, which leaves a An increase of 50%.
It is true that we were then talking about the character of refuge value that Bitcoin is acquiring, basically because of his behavior in times of crisis or shocks at the world level, but this does not make him safe from suffering bubbles, just as he has happened to gold at Throughout history. Just because you have another idea, from May 19 of that $ 1,900 of which I spoke to before last Friday, May 26, Bitcoin has revalorized (again) almost another spectacular 50%, with about 20% only on the effervescent day of Thursday (since then and during the weekend its price has shown us again that it is extremely volatile, and has marked a wide band of quotation between approximately $ 1,900 and $ 2,750) .
What has changed since then so that we can now tell you that Bitcoin may be experiencing a bubble? As a refuge, little value: international investors continue to make use of crypto-currency in this sense, and that is what ultimately gives it its character as a refuge. What has changed (among other things) is a revaluation of more than 50% in just a few weeks. You will agree that if we were seeing this evolution in so little time in the price of Brent's barrel, in the stock exchanges, or in the same gold, we would undoubtedly be talking about the formation of a possible bubble: I do not see why Bitcoin Is going to be an exception.
Apart from the quote by Bitcoin, what other factors point to the formation of a bubble?
I will start this section by a factor does not necessarily have to be indicative of a bubble, but that certainly has been able to contribute decisively to its formation. I am talking about the strong concentration of most of Bitcoins among so few investors. I have already told you about this subject in the past, more specifically in the analysis that I have linked to you before, here I simply link you to the graph about it that was published in Quora. I suppose they will agree that if there are a few Bitcoiners that own almost all Bitcoins, and that they may not be willing to sell (in fact they have not been doing it in the last few years), obviously they may be producing a strangulation of Supply, given a growing demand.
Come, that this concentration of Bitcoiners is a book motive to facilitate that a bubble is produced, and to make its prick much more abrupt: it supposes a great supply embalmed that probably does not hesitate to go out to the market (at least in a part Relevant to the current tightness) when the wind blows against.
There are three classic factors indicative of the formation of a bubble in any asset: the PER (Price-Earnings Ratio), the pace of mergers and acquisitions (or M & As of Mergers and Acquisitions in the Anglo-Saxon world), and demand Alternative secondary assets (including pecans).
Regarding the first of the factors, the PER, we must say that it can not be measured as such in the case of Bitcoin. This is not a technical impossibility or anything of the kind, but is due to the very nature of Bitcoin as a crypto-currency, and in contrast to the actions of a company that brings tangible benefits aside from listing on the markets. But this is not an anomaly of Bitcoin, we can say the same with respect to gold, petroleum, any raw material in general, and in the bottom with respect to any asset that quotes but does not give a return of tangible profitability while maintaining In portfolio However, the fact that a Bitcoin does not produce more return than the one due to its mere quotation, should not detract from the most recent evolution of its quotation. Judging by the revaluations at a steady rate of 50% and achieving rates of 20% daily a day yes and no, effectively, if this is not a bubble seems to you (and a lot).
With regard to the M & As factor, in this case we can not apply this indicator in a conclusive way to the case of Bitcoin, since, in the case of coins with differentiated encryptions and not being quoted companies, there is no option to carry out transactions Merger or acquisition. However, this factor can give us some extra insight, since the number of crypto-currencies quoted is stratospheric: CoinMarketCap quotes more than 800 of them. This fact can not but think that if they were quoted companies, we would be attending an effervescent feast of multiple mathematical combinatorial among them. Quoted from the primordial and ubiquitous Bitcoin, to so fashionable Ether that is also based on blockchain, and is a broader crypto-platform concept that includes "smart contracts" and even the Ethereum Virtual Machine, and ending With coins like the dark crypto-Russian coin ArticCoin.
This is a crypto-diversity that seems excessive for the current size of the market, and is also supported by future expectations to be confirmed, and which only makes each month more than more successful exits to the market of currencies whose only claim and Value is to add the prefix "crypto". A fact that can not avoid remembering those happy months (and years) before the puncture of the bubble .com in which, only on the first day of listing were stock valuations millionaires for companies with no business model or known activity that Simply beyond putting the ".com" sign: only with that the investors already flocked. The mechanism of the bubbles is that the investors cause great inflation in the quotations of the companies of the sector affected, and arrive to deliver their money blindly. In my modest opinion, this is something that is happening right now with inflation even from other crypto-currencies that are nothing (but nothing at all) consolidated.
This last paragraph brings us to the third and final factor (among the main ones): the rotation of the demand for alternative secondary assets, once the main assets have reached a point of saturation in the market. Obviously the rotation is occurring with all those successful outflows. However, this latter factor also serves as an indicator of the maturity of the bubble, since it usually occurs in the final stages of the rise before the puncture. Remember that when chips come up like foam, you can be sure that the stock market rally is reaching its most dangerous phase.
And what will the puncture be like?
For judging by the dimension (or should I even say exo-dimension) of the preceding rise, the bump is promised epic. To the great concentration of Bitcoiners that we quoted before that supposes an important embalmed supply, the technical and operational limitations are united, that in the concrete case of Bitcoin are 7 operations per second (the developers have been discussing how to solve this obstacle for years).
We also have the fact that many operators of Bitcoins in many cases do not reach the availability or scalability of operations of traditional banking, with operational problems such as those suffered by one of the main operators Bitfinex, about which they can read in this link. These potential operational problems, and the fact that Bitcoin has not so far faced a stampede as those markets are not accustomed from time to time, can not but narrow the outlet bottleneck, and magnify the damage Caused by the stampede.
However, I would like to point out that, in this analysis, we are applying tools from the past to detect bubbles of the future, and that the future financial bubbles will change in form, but not in depth: bubbles is sure to continue, Human nature is behind them. High doses of passionate and irrational ambition will continue to appear every few years, but in a new economy they will manifest themselves in new and different ways that we still do not know today (at least 100%). This is an approximate exercise, with the sole aim of alerting them to what may be just around the corner. Caution and non-running after prices are one of the best advisers in the markets.
Do not worry if you did not go into Bitcoin when you quoted at pennies: entering now at current prices will not make those prices come back, and you do not have to worry too much: markets will always be there offering new investment opportunities . And in any case, remember that Bitcoin is a currency, and however much it rises, you will always be able to use it as such for your transactions at any time. The big question is no longer whether to puncture the Bitcoin bubble and / or other crypto-currencies: at this point I hope this answer is obvious to you. The big question is whether (and which) will survive the puncture. Probably (some) will survive as the stock market, gold, oil or any asset that quizes countless and sound bumps have survived, but what we can not know for sure is not when they will recover (some) confidence, nor what dead bodies They will remain by the gutter.
The magnitude of the bump in each case will be determined by the concrete limitations of each crypto-currency, by its true projection to the future, by the bottlenecks generated in each of them, by the magnitude of the preceding rise and Of the subsequent stampede ... and let me also include a certain component of chance. No doubt multiple factors will determine who will survive the calamity, and who will pass to better (or rather worse) life. In any case, you should not forget that with the actions, after the bump, you ended up having some shares that are only pieces of paper, but which, after all, prove the possession of a "part" of a company: If finally some crypto-coins crash, remember that the only thing left in your wallet will be a few strings and zeros with a value that can perfectly become an absolute zero (or even a pointer with NULL value).
You can not close this analysis without saying that the only thing that I can not tell you is neither when nor what specifically, but what I can assure you is that crypto-currencies will fall several, and although in principle Bitcoin is the most consolidated, Never disregard the stampede effect, which can pull down even the most liquid asset. What is clear is that, being the future (probably), that does not mean that any crypto-currency has a future, and less with the broad catalog that some begin to carry in their portfolio of mutated encyclopedias, to offer unsuspecting Who do not know for sure where the hell they put their money: As if they gave it away!
Written by
DerBlaueMond,
With the collaboration of El Blog Salmón
The opinions expressed in this article are those of the author and not of the World Economic Forum.