Old school – For Michael Hartnett, director of strategy for the Bank of America, the Bitcoin bullrun we live in would outperform all other financial bubbles and be “ the mother of financial bubbles ”.
But, if you are an avid reader of the Journal du Coin, you know that the mother of financial bubbles took place in 1720
The sudden rise in the price of Bitcoin since mid-December is impressive , even shocking , but this speculative euphoria hardly outclasses historic bubbles, such as dot com or subprime . The crypto-asset market does not yet have sufficient capitalization to compete with events of this magnitude.
Hartnett points to the increasingly speculative behavior of crypto investors and warns of the bursting of the “ bitcoin bubble ”. For the strategist, bitcoin’s performance – up 1000% since 2019 – portends a bubble of unprecedented magnitude , which would relegate the bubbles of the past to the rank of minor events.
Bitcoin: bubble or asset undervaluation?
Of course, it is still possible to draw a parallel between the rise in the price of Bitcoin and previous explosions in the prices of other assets. Current market conditions are unique and the rise exceptional . The rise in gold in the late 1970s, the rise of web businesses in the 1990s, and soaring house prices in the mid-2000s all resulted in huge corrections after underperforming three digits.
However, the reality is more nuanced , even if Bitcoin has just corrected by almost 20% today. I think we are seeing a revaluation of all of the area that was clearly undervalued in the eyes of the market. This is not to say that Bitcoin’s new ATH represents the fair value of the asset, but only the price in 2020 was too low compared to this theoretical fair value of the asset.
At Bitcoin, nothing fundamentally changed between 2019 and 2020 , yet institutions have been buying bitcoins for several months and this long before the price hike. The pandemic has been a catalyst for change and made many players realize the value proposition of cryptoassets .