Bitcoin Exuberance: Indicative Of A Bubble?
Many economic experts believe that Bitcoin is in a massive speculative bubble, pointing to that market’s supposed value of $95 billion plus. Credit Suisse Group AG CEO Tidjane Thiam is among a growing handful of financial leaders espousing this “very definition of a bubble,” notion on the heels of Bitcoin’s meteoric, record-setting growth.
At a November 2 conference in Zurich, Thiam had this to say, “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,” adding that in the history of finance, this manner of speculation has “rarely led to a happy end.”
He also believes that bankers are wary of bitcoin out of concern about criminals using its anonymity to engage in nefarious anonymous activities.
Thiam is not the only one. The likes of JPMorgan Chase & Co CEO Jamie Dimon and ISB Group AG Chair Axel Weber have also been very vocal in sounding the warning bells; the former calling bitcoin “a fraud” that will eventually implode.
Jack Tatar, angel investor and advisor to startups in the crypto asset community and co-author of the book Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond says that we’ve already see bubbles come and go with bitcoin noting that it’s still a young asset class. He believes that as investors better understand bitcoin and cryptoassets, we’ll see more efficiencies in the markets. Then perhaps, he says, what looks like a bubble may just be a valid realization of utility and speculative value.
When asked what bitcoin and other crypto investors should be mindful of amid this unprecedented period of exuberance, Tatar had this to say:
“Every investor either involved in or considering crypto needs to recognize that there’s little research or advice available. Few advisors will even discuss it, and they must do their own due diligence when considering investment options. As with any other investment, an investor must do their research and consideration of cryptoassets as they would with any stock or bond purchase.”
He goes on to note that it is essential to understand a cryptoasset and what business case it addresses and solves. “If you don’t understand it or couldn’t explain it to a friend, don’t invest in it.”
Also, one of the Burniske-Tatar (Chris Burniske being his co-author) rules is to never invest in a cryptoasset solely because it’s experienced a dramatic increase in price. Rather Tatar says that “an investor needs to understand what they’re investing in.”
Additionally, according to Tatar, it’s important for an investor to take note of their overall asset allocation. He continues, “A dramatic run in cryptoassets could skew an investor’s asset allocation model drastically. That needs to be evaluated and adjusted to ensure that one’s overall investment portfolio allocation stays within the guidelines and plans they have set. Cryptoassets should be considered an alternative asset and should not be more than 10-20 percent of an investor’s overall portfolio. Of course, that can certainly vary given the individual investor and their situation and goals.”
On whether this exuberance in bitcoin speculation might further the call for some regulatory edicts on crypto, Tatar concludes, “The regulators are definitely watching. It’s time for the larger crypto community to recognize that regulation will happen and is probably a good thing. It should help the individual investor, and clearly, we need more guidance on taxes.”
“However, the US needs to recognize that if they come in with a sledgehammer, rather than a surgeon’s knife to create meaningful regulations, investors in the US will suffer as cryptoassets are worldwide and there are options for international investors. The US should understand that they’re a big force but not the only force in the worldwide cryptoasset market.”