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Author of a book on financial bubbles applies its key postulates to Bitcoin price rise.
The author of a book about identifying bubbles has argued that the rise in Bitcoin price which has recently seen it overtake its previous all-time high, is progressing with little signs of being a bubble in danger of popping soon.
There have been several issues raised about Bitcoin price rising. The buzzword in most instances has been “bubble” - a situation that is isolated from reality and not likely to last.
In the case of Bitcoin, reference has always been made to the 2013 spike in its price when it shot to as high as $1149 before it slumped back to about $197 slightly over a year later, according to figures from CoinMarketCap.
Vikram Mansharamani used the framework for identifying bubbles as stated in his 2011 book Boombustology: Spotting Financial Bubbles Before They Burst, to note that today’s Bitcoin market exhibits fewer than two of the five major features of a fully inflated bubble.
On a higher the score, the more bubbly the market scale, Bitcoin scores 1.5 over five having applied the five lenses that generate a probabilistic assessment of a forthcoming bust - Reflexivity: Higher prices increase demand; leverage: Futures contracts and other instruments; Psychology: Overconfidence and “religious” conviction; Politics: Regulations and moral hazards; and maturity: Potential market remaining.
In a LinkedIn post, Mansharamani notes that while short-term price corrections are always possible, there are compelling reasons to believe the long-term outlook for Blockchain-enabled currencies like Bitcoin is bright.
On his five point scale with the fifth being a “virtually certain bubble likely to burst imminently” he adds that Bitcoin registering one and half points means that “the stage may be set for it to become a bubble, but it doesn’t appear to be one yet.
It may one day become a full-blown bubble with high bursting risk but the evidence doesn’t suggest we’re there yet. Recall that government attempts to contain Bitcoin have failed, anointing the cryptocurrency with a “forbidden fruit” status and driving new demand.”
Mansharamani highlights that it is unclear that increase in news and interest in bitcoin raises its price and the volume of trading has not gone up just as Bitcoin prices. He did not see any evidence that leverage is fueling the potentially elevated Bitcoin price and no artificial government interventions have been supporting the price of the cryptocurrency.
Also, Bitcoin is not as widely held or used as it could be and there is still a large population of potential buyers waiting on the sidelines following a recent twitter poll conducted by investor Mark Hart in which only 22 percent of respondents indicated being “Max Long” Bitcoin while 49 percent are “Planning to buy/add” or “Curious.”
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