Enlarge image
Hot thing:
Bitcoin price has risen sharply - when will it fall again?
Photo: Dado Ruvic / REUTERS
The past few days should have clearly reminded many investors of the risk of a setback in the price of Bitcoin and other crypto currencies at the current level. Bitcoin, the most important cyber currency, reached a record high of almost $ 65,000 in mid-April. Then a few speculations about a possible tax hike that US President
Joe Biden
(78) might have in mind, and the Bitcoin price slipped violently. Within a few days it went down to $ 50,000, which is a minus of almost 24 percent. Since then, the Bitcoin price has risen slightly again to around $ 54,000.
Such fluctuations, which are not uncommon in the crypto market, are a clear sign that this niche of the investment market is not a suitable place for a solid investment. This is also shown by the long-term view, in which the short-term ups and downs mentioned do not play a major role: twelve months ago, a Bitcoin cost less than $ 8,000. The price has risen by far more than 700 percent up to its record high last week. The similarity of this rally to the 2017 Bitcoin hype is all too obvious. At the time, the rate rose from less than $ 800 at the beginning of the year to nearly $ 20,000 in December - only to plummet again in the months that followed.
In retrospect, the price trend three years ago can be seen as a prime example of a speculative bubble that was initially inflated and then burst. And there is much to suggest that the same thing is currently being repeated on the crypto market.
Similar phenomena have often occurred in the financial market.
A prominent example are the price exaggerations in Internet stocks at the turn of the millennium ("dot-com bubble").
The US tech index Nasdaq Composite, for example, rose by around 400 percent between 1995 and March 2000 - then it fell sharply by almost 80 percent.
In Germany, around the same time, the Nemax 50, an index for technology shares on what was then the Neuer Markt of the Frankfurt Stock Exchange, rose from 1000 points in 1997 to almost 10,000 points in spring 2000.
What happened next is well known: In autumn 2002 the Nemax was only listed at a value of a good 300 points.
Where is the substantial value of a bitcoin?
One difference: 20 years ago, at least 20 years ago, there were still companies with business models from which possible operational successes in the future could be derived. In this way one could justify strong price increases, at least in theory.
This is different with crypto currencies: even on closer inspection, it is hardly possible to see where the substantial value of an investment should be. Various institutional investors such as Goldman Sachs or Bank of New York Mellon are now turning to the segment. In doing so, however, they often only reflect the trend that they do not want to be left out. Companies in the real economy such as PayPal or Tesla also show that they take Bitcoins seriously and want to accept them as a means of payment. But who is currently actually paying for their purchases with Bitcoins?
The fact is: Anyone who is currently investing their money in these cyber currencies is doing so primarily in the hope that the price will continue to rise - and that is the textbook definition for speculation. The best example is the car manufacturer Tesla, which made headlines at the beginning of the year with its billion-euro investment in Bitcoins. When the company's business figures were published a few days ago, it became clear: By reselling some of these bitcoins, Tesla boss
Elon Musk
(49) improved his group's quarterly profit.
Jerome Powell
(68), head of the US Federal Reserve
, recently said that cryptocurrencies are highly volatile and therefore not really useful for storing value, especially since they are not secured by anything
.
Cyber money is more of a speculative asset, according to the central banker.
Large majority of finance professionals believe in the Bitcoin bubble
According to Bloomberg, the Canadian analysis firm BCA Research comes to the same conclusion. Other prominent sources also made other skeptical comments, which can ultimately also affect the price. For example, there is increasing criticism that Bitcoin mining in countries like China or Russia is increasingly using energy from coal power, which has a significant impact on the environment. Facebook and PayPal investor
Peter Thiel
(53), himself a crypto investor with a presumably good cut, recently warned against Bitcoin as a possible "Chinese financial weapon" and called for more control over cyber money.
US billionaire
Ray Dalio
(71) goes one step further. The founder of the world's largest hedge fund, Bridgewater Associates, can imagine that Bitcoin faces the same fate as gold experienced in the 1930s. Because cash and government bonds had become unattractive at the time, investors switched to other assets, Dalio said in a recent interview. As a result, the state took action. "They banned gold," says the professional investor. "That is why a Bitcoin ban is quite possible."
The result of a survey recently carried out by Bank of America appears somewhat less radical, but at least as alarming. At the preliminary high point of the Bitcoin price hype a few days ago, the institute asked investment professionals for their assessment of the price development. Result: 148 out of 200 and thus 74 percent of the financial professionals surveyed stated that Bitcoin was in a speculative bubble. 20 percent did not answer the question at all and only 16 percent denied the existence of a Bitcoin bubble.
All speculative bubbles have one thing in common, regardless of the market in which they appear: sooner or later they burst, and prices or rates then rapidly decline.
However, even the best financial experts cannot answer the question of when this will happen in the case of the current Bitcoin bubble.
cr