Bitcoin lost up to 20% of its in-session value on January 11, after weeks of record price spikes. At Bank of America, specialists are wondering if bitcoin would be “the mother of all bubbles”, with a crash in sight. This is not the opinion of Mael Rolland, specialist in cryptocurrencies, interviewed by Sputnik.
Is this the end of the euphoria? After chaining record highs and venturing around $ 42,000, bitcoin had a rough day on January 11.
The most famous cryptocurrency has lost up to 20% of its value during the session. Since then, it has recovered a bit and this January 12 at 12:44 UTC, bitcoin peaked at $ 34,973.50. Still very high valuation. As a reminder, its price fell below 5,000 dollars last March.
Some observers are not surprised by this “Mini crash”. “A selling market and such intense volatility can scare the uninitiated”, but this correction was to be expected, confirms Edward Moya, analyst at Oanda, quoted by AFP. Others wonder. This is particularly the case of Bank of America Global Research in its weekly report, «The Flow Show», published January 7. In this document, mentioned by MarketWatch and echoed by Investing.com, analysts at the US bank speculated that bitcoin could be “The mother of all bubbles”.
“The mother of all bubbles is above all the monetary policy of central banks which pour trillions of currencies into the financial system”, replied Maell Rolland, doctoral student at EHESS (School of Higher Studies in Social Sciences) and cryptocurrency specialist.
To combat the economic impact of the Covid-19 pandemic, several central banks – in particular the United States Federal Reserve (Fed) and the European Central Bank (ECB) – have turned the printing press at record levels in 2020. In April, the Fed announced a vast support program, which could reach 2.3 trillion dollars. Faced with the resurgence of the epidemic in the United States, Jerome Powell, head of the American Central Bank, assured that the institution he heads could further increase its support. Currently, the Fed acquires $ 120 billion in assets per month, including 80 billion treasury bills and 40 billion MBS (US mortgage-backed securities). All in a context of rates close to zero. In the wake of this crisis, the Fed’s balance sheet rose from 4,100 to more than 7,300 billion dollars, which represents about a third of US GDP.
After the gold rush, the bitcoin rush?
Same story on the side of Europe with the ECB, which also released heavy artillery with its asset buyback program, called «Pandemic emergency purchase programme» (PEPP). In view of the severity of the crisis, the latter has already been raised twice and now reaches 1.850 billion euros. In 2020, the ECB’s balance sheet rose from 4,300 to more than 7,000 billion euros. It now far exceeds half of the euro zone’s GDP.
According to Mael Rolland, a large part of this money creation is going towards financial assets, which are very popular with investors.
“They are going towards bitcoin or Tesla, in order to protect themselves against the risk of a future crash,” Mael Rolland analyzes.
Like the sharp rise in bitcoin, the share of the brand of eccentric billionaire Elon Musk saw its price jump by more than 700% in 2020. A record that has considerably increased the already colossal fortune of its boss.
Such increases raise questions. Regarding bitcoin, analysts at Bank of America (BoA) have decided to compare the rise of cryptocurrency to famous bubbles that have marked finance in recent decades. “This includes a rise in the price of gold of over 400% in the late 1970s, as well as other notable investment fads: Japanese stocks in the late 1980s, the Thai stock market in the middle. of the 90s, dots-com at the end of the 90s and housing prices in the mid-2000s », says Investing.com.
Bitcoin: + 1,000% since early 2019
As the site specializing in trading emphasizes, “These sectors all experienced triple-digit gains before collapsing”. Michael Hartnett, chief investment officer at Bank of America Securities, therefore concludes that bitcoin looks like “The mother of all bubbles”, noting in its report that the cryptocurrency has jumped by around 1,000% since the start of 2019.
Mael Rolland, for his part, relativizes the danger of the bursting of a bubble linked to bitcoin:
“When you compare the bitcoin market to that of derivatives, the amounts are absolutely not the same.”
The famous investor Bill Miller recently recalled that the capitalization of bitcoin was now greater than that of Berkshire Hathaway, the investment fund of billionaire Warren Buffett, or even that of the investment bank JP Morgan. However, as Mael Rolland points out, the cryptocurrency market is still small compared to that of certain other financial products. “Today, the cryptocurrency market weighs 463 billion euros; a market that is active 24/7 unlike the stock market. There are more than 10,000 cryptocurrencies which were all created following the creation of bitcoin, which is open source ”, recently explained to the site Entreprendre.fr Christopher Villegas, CEO of the Digital Service Group. By way of comparison, the European derivatives market exceeded … 660,000 billion euros in October 2018, according to The echoes.
A crash or a bitcoin over $ 140,000?
And now what will happen to bitcoin? Nothing is certain. “Note that the BoA study did not concretely predict that the price of bitcoin would fall. It simply pointed to the evolution of bitcoin as another example of “increasingly speculative” investment behavior ”, nuance Investig.com.
Mael Rolland recalls that “This is not the first time that we have talked about a bubble concerning bitcoin” and that cryptocurrency “Is not the same as two years ago and even less than in 2011.”
“The bitcoin ecosystem has grown enormously in recent years. There is a real industry that has opened up to the world, with secure professional solutions for transactions and intervention in this market for institutional investors ”, underlines the expert.
UK financial regulator FCA has issued a warning to investors: “If consumers are investing (in cryptocurrencies), they must be prepared to lose all of their money.” On the side of JP Morgan, we put long-term on a bitcoin at … 146,000 dollars. Pick your side.