Skip to Content
MarketWatch

Bitcoin's parabolic price surge near $42,000 may be the 'mother of all bubbles'

By Mark DeCambre

After a multiyear pit stop, bitcoin prices are surging like never before.

The unabated price acceleration to a recent peak near a stunning $42,000 on CoinDesk has made true believers out of many staid Wall Street pros, who may have once turned their collective noses up at the digital-asset that has only been around for a little over a decade.

However, the extraordinarily parabolic move for bitcoin, which was at last check, up 2.5% on Friday at $40,202 has raised serious questions about bubbles, like the Tulip mania of the 17th century.

BofA Global Research in their weekly "The Flow Show" report dated Jan. 7, raised the question as to whether bitcoin's price move represents the "mother of all bubbles." Check out the following chart that takes a stab at comparing the climb in asset against other assets over decades.

Of course, the chart doesn't go all the way back to the Tulip craze, where a single tulip commanded the same price, and often more, as a house during the peak of the Dutch craze from 1636-1637 (link).

But BofA's point is well taken, bitcoin's are richly prized and comparatively are staging a precipitous climb that merits attention and, perhaps, caution.

So far in the first full week of 2021, bitcoin has already climbed nearly 37%. By comparison, the Dow Jones Industrial Average is up a respectable, but more mundane, 1.5%, the S&P 500 index is on track for a 1.6% gain and the Nasdaq Composite Index has returned 1.4% thus far.

Bitcoin's rally this year has pushed up the collective cryptocurrency market capitalization to a record above $1 trillion and as BofA's Michael Hartnett and his team puts it, the rise, of the "cryptocurrency market now >$1tn as Bitcoin past 2 years blows-the-doors-off prior bubbles."

The gains appear to be far from over if you believe forecasts from JPMorgan Chase, whose researchers argue that the digital currency could be valued at $146,000 (link) if bitcoin challenges gold as a haven-like asset. That would certainly be worth a respectable house.

Of course, this isn't the first time that bitcoin has been referred to as a bubble.

In a prepared testimony (link) for a Senate Banking Committee hearing back in 2018, Turkish-born economist, Nouriel Roubini, said digital currencies are the "mother of all bubbles" and, in fact, have entered an apocalypse.

Howard Wang, co-founder of Convoy Investments, also dubbed bitcoin the biggest bubble in history (link) before its eventual collapse back in 2017.

-Mark DeCambre; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

01-08-21 1601ET

Copyright (c) 2021 Dow Jones & Company, Inc.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.