Topic: So where exactly are we in the bubble? - page 2. (Read 5175 times)

2010, 2011, 2013 (twice), now...

Bitcoin is almost certainly in a bubble, a short-term one. I think we may be flirting with the Greed phase, but who knows?

Long term, I'm still very bullish - we may still be at "smart money" or the "lunatic fringe" as Andreas Antonopoulos would phrase it, so eloquently the way he does.

2010, 2011, 2013 (twice), now...

Bitcoin is almost certainly in a bubble, a short-term one. I think we may be flirting with the Greed phase, but who knows?

Long term, I'm still very bullish - we may still be at "smart money" or the "lunatic fringe" as Andreas Antonopoulos would phrase it, so eloquently the way he does.

That's right, we're all in a bubble, but this bubble can continue to continue if it is not punctured. In other words, if it is stable, it will last forever, but if it is affected badly, it can break down at any time.

Yale economics professor Robert Shiller won the Nobel prize for his work on bubbles. He wrote a seminal book on speculative manias, Irrational Exuberance, a deep analysis of the dramas over the centuries when otherwise sane people drove prices for tulips, stocks, and houses to inexplicable heights.

Shiller developed some of the tools that are considered vital for taking a sober look at markets. He helped create indexes for measuring real estate prices and his stock market valuation indicator, the cyclically adjusted price-earnings ratio, or CAPE ratio, is seen as one of the best forecasting models for stock returns.

As Shiller sees it, “big things happen if someone invents the right story and promulgates it.” Quartz spoke with him about some of the frothiest assets today, from bitcoin to tech stocks.

Quartz: What are the best examples now of irrational exuberance or speculative bubbles?

Shiller: The best example right now is bitcoin. And I think that has to do with the motivating quality of the bitcoin story. And I’ve seen it in my students at Yale. You start talking about bitcoin and they’re excited! And I think, what’s so exciting? You have to think like humanities people. What is this bitcoin story?

It starts with Satoshi Nakamoto—remember him? The mysterious figure who may or may not be real. He’s never been found. That has a nice mystery quality to it. And then he has this clever idea about encryption and blockchain and public ledgers, and somehow the idea is so powerful that governments can’t even stop it. You can’t regulate this. It kind of fits in with the angst of this time in history.

If you look at the third edition of Irrational Exuberance, I’m arguing that there’s a fundamental deep angst of our digitization and computers, that people wonder what their place is in this new world. What’s it going to be like in 10, 20, or 30 years, and will I have a job? Will I have anything?

Somehow bitcoin fits into that and it gives a sense of empowerment: I understand what’s happening! I can speculate and I can be rich from understanding this! That kind of is a solution to the fundamental angst.

So I’m trying to deconstruct the bitcoin story. Big things happen if someone invents the right story and promulgates it.

The only bitcoin bubble whose crash lasted for more than a few months was from Mt Gox dying. That was the most catastrophic thing to happen to bitcoin, so unless you think a similar event is going to happen soon, what you are predicting is extremely unlikely. Without a catastrophic catalyst like that, we're probably not gonna have any bubble pops that last for more than a few months. The buy pressure and increasing userbase/adoption is just too damn strong to possibly allow a down period of a year or more.

I wouldn't even call this a bubble at all. Look at past bitcoin bubbles. The price increased 10-fold or 30-fold or whatever in a couple of months. This has been a gradual increase, up 10-fold in over a year, not in two months. That suggests steady solid growth, not a frenzy induced bubble that will pop.