Skip to main content

Is Bitcoin in a Bubble or Is It Just Getting Started?




As the cryptocurrency Bitcoin hit a high of over $11,000 at one point this past week, more and more market watchers are predicting a crash of some severity.  Unlike most of those “gut calls”, one study in particular was actually backed up with hard data.  

The study, entitled “Bubbles for Fama” was authored by Robin Greenwood, finance and banking professor at Harvard Business School, and Andei Shleifer, economics professor.  The researchers found that when an asset has a price run-up of 100% or more in a two-year period, the probability of a crash becomes 50%.  When focusing on run-ups of at least 150%, that probability jumps to 80%.  Higher than that and a crash is a near-certainty.  Of note, the authors focused on the stock market in their study, not cryptocurrencies.  But their research included nearly a century worth of historical stock data from around the world, and found similar conclusions regardless of the time period or country.  

Bitcoin’s run-up over the last two years is nearly 2,500%.  

(But who is “Fama”, you ask?  He’s a well-known academic economist who is also a leading proponent of the “Efficient Market Hypothesis”, which states that the markets have already efficiently and effectively incorporated all known information into its pricing.  But if that’s true, there can be no bubbles!  So, the authors are offering up their study of genuine bubbles to Professor Fama for his consideration…)


Comments

Post a Comment

Popular posts from this blog

Womack Weekly Commentary: September 18, 2017

­Womack Weekly Commentary September 18, 2017 The Markets “In theory, there is no difference between theory and practice, in practice there is.” Yogi Berra was talking about baseball, but the concept also applies to diversification, according to the GMO White Paper, The S&P 500: Just Say No . From the title, you might think the authors – Matt Kadnar and James Montier – don’t like U.S. stocks. They do: “Being a U.S. equity investor over the past several years has felt glorious. The S&P 500 has trounced the competition provided by other major developed and emerging equity markets. Over the last 7 years, the S&P is up 173 percent (15 percent annualized in nominal terms) versus MSCI EAFE (in USD terms), which is up 71 percent (8 percent annualized), and poor MSCI Emerging, which is up only 30 percent (4 percent annualized). Every dollar invested in the S&P has compounded into $2.72 versus MSCI EAFE’s $1.70 and MSCI Emerging’s $1.30.” The au...
9 comments
Read more

Another Tornado Record's in Sight for U.S. as Thunderstorms Boom

Bloomberg by Brian K Sullivan Another wave of tornado-spawning thunderstorms is set to rip across the Great Plains and South this week, putting the U.S. within reach of a record year for life-threatening twisters. Severe storms will drench a swath of the country from Texas to Mississippi over the next five days, according to the U.S. Storm Prediction Center. Through Thursday, 369 tornadoes have been reported across the country, the most in five years and more than double the normal number of sightings. An active jet stream and unusually balmy weather are to blame for the burst of deadly tornado activity, the storm prediction center said. Strong winds have dragged storms into the warm, humid air that’s blanketed the eastern half of the nation, creating conditions ripe for a weather phenomenon that leads to at least $400 million in damage a year in the U.S. “We have a severe threat starting today and continuing for each of the next five days through at lea...
Post a Comment
Read more

Pandemic-Driven Demand Is Providing Fuel for Investors

  For four weeks, the U.S. stock market has sparked and sputtered like a campfire in light rain. Today, pandemic-driven demand is providing fuel for the investors. The need for certain types of products and services has accelerated and innovation is creating new opportunities. Consider: ·      Technology . Today, digital technologies support nearly all group interactions, which has accelerated innovation. Traditional video communications platforms are in high demand, and multi-person virtual platforms are emerging. Robotics innovations are racing ahead, too. Robotic dogs enforce social distancing in Singaporean parks, reported Accenture. Other types of robots sanitize streets and facilitate contact-less delivery around the globe. ·      Consumer products and services . COVID-19 increased demand for staples, cleaning, and personal hygiene products. The virus may have inspired deeper and longer-lasting changes in consumer behavio...
1 comment
Read more