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Is Bitcoin in a dangerous bubble?

Photo of: Nathan VDH
by Nathan VDH

Speculation pushed Bitcoin beyond the 40,000 mark, before a sudden return to $35,000. This historic price is attracting investors, but beware of the bubble bursting, Bank of America warns.

Thanks to the increasing exposure of pension funds to Bitcoin, Grayscale is accumulating more and more Bitcoin. As a result, the asset manager now holds approximately 3% of the outstanding Bitcoin. The scarcity of cryptocurrencies is increasing, and its price is rising.

But beware of a possible backlash, warns Bank of America’s investment director. Michael Hartnett can only note the phenomenon of “violent inflationary pricing” at the origin of the explosion in the value of Bitcoin.

However, he cautions investors. For Hartnett, we are currently facing a speculative bubble. Worse, the Bitcoin bubble would even be the “mother of all bubbles”, largely supplanting previous ones such as the Internet bubble of early 2000.

For Decrypt, however, such an analysis is not unanimous. Nevertheless, it would have perfectly explained the previous surge of Bitcoin at the end of 2017. This bull-run ultimately led to the plunge of the cryptocurrencies.

But for many specialists, the context of 2020 and 2021 is radically different. First of all, there is the very active participation of institutional investors. 2017 was essentially based on the investment of individuals, attracted by ICOs and altcoins.

However, while Michael Hartnett of Bank Of America, warns of the possible risks of speculation around Bitcoin, he does not announce an imminent fall. The surge in the price of cryptocurrencies, however, characterizes an “increasingly speculative investment behavior. ยป

Nor is he the first to warn of a Bitcoin bubble. The chief economist of Rosenberg Research realized this a few weeks earlier. For him, investors are following the herd. And a turnaround cannot be ruled out.

Bubble or no bubble, the value of Bitcoin now allows players to realize significant capital gains. This is the case, for example, of Nigel Green, the boss of deVere Group, a giant in financial consulting.

In December, he sold 50% of his Bitcoin. Cryptocurrencies is not a religion for this savvy investor. Thus, Bitcoin “should now be treated like any other investment”.

Nigel Green reminds us that when it comes to investments, “it is better to sell high and buy low. “And the current movements of Bitcoin can be explained by equivalent investor strategies.

“Like me, a lot of traders are going to sell at record prices. So we can expect some price declines in the short term,” predicted the deVere Group CEO. But in the long term, the trend is definitely upwards. This is the analysis of JPMorgan, for whom Bitcoin could climb to $146,000 by offering an alternative to gold.