The Bitcoin craze has often been compared with the 17th-century “tulip mania” bubble. Whether such a comparison is valid, one thing we can do is look at the actual levels and percentage gains.
What you are about to see may surprise you.
A month ago, when the price of Bitcoin was only at $7,500, Convoy Investments produced a chart comparing the largest asset bubbles in history to the “Tulip Mania” phenomenon.
This chart went viral:
As you can see, the Bitcoin surge was higher than all historical bubbles except for the tulip craze.
But now, only a month after this chart was published, Bitcoin’s price surged even higher. When Convoy’s analysts, Howard Wang and Robert Wu, updated their chart to reflect this change, what they came up with astounded them.
In their commentary, they write: “its price has now gone up over 17 times this year, 64 times over the last three years and superseded that of the Dutch Tulip’s climb over the same time frame.”
The updated chart:
This reminds us of what Mike Novogratz (a cryptocurrency pioneer) once said: “This is going to be the biggest bubble of our lifetimes.” And of course he invested hundreds of millions into the cryptospace. He also stated his belief that Bitcoin will hit $40,000 and that Ethereum will increase three times its price to around $1,500.
Wang, on the other hand, expressed a more balanced view:
“I continue this topic and discuss a main driver of bubbles. When we see a dramatic rise in asset prices, there is often an internal struggle between the two types of investors within us. The first is the value investor, “is this investment getting too expensive?” The second is the momentum investor, “am I missing out on a trend?” I believe the balance of these two approaches, both within ourselves and across a market, ultimately determines the propensity for bubble-like behavior. When there is a new or rapidly evolving market, our conviction in the value investor can weaken and the momentum investor can take over. Other markets that structurally lack a basis for valuation are even more susceptible to momentum swings because the main indicator of future value is the market’s perception of recent value.”
If we learn anything from this, it should be apparent that we are witnessing an asset bubble unlike any we’ve seen before.
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