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If Bitcoin Isn’t a Bubble, it’s an Awfully Good Impression

November 2017
By Andrew Williams, Investment Specialist, Equity Value for Schroders Investment Management

In the fast-paced cryptocurrency world, has bitcoin hit its peak?

We believe that investor behavior surrounding bitcoin and other cryptocurrencies had a distinctly bubbly feel.

From an early peak of $1,100 in late 2013, the value of a single bitcoin has lurched its way within touching distance of the $3,000 mark. Is it possible that its bubble may have burst?

By mid-October 2017, one bitcoin would have gotten you a little over $5,800 before retreating below $5,600 a few days later, which neatly illustrates two points.

First, things move very quickly in cryptocurrency world—who knows where the price will be when you actually read this? Second, this is why we do not go in for market timing.

Still, regardless of whether bitcoin actually turns out to have been a bubble, its behavior in recent years is a freakishly good impression of one.

Take a look at the following chart, which plots its price movements over the last six years against the classic trajectory of any asset bubble.

It is a pretty good fit, with the journey over the last few months putting bitcoin above the “New Paradigm” point of the “Blow-Off Phase.”

Figure 1

Is Bitcoin Heading into a Bubble?


Source: Thomson Reuters Datastream, 19 October 2017. Past performance is not a guarantee of future results.


To be clear, none of this is to attack bitcoin, the other cryptocurrencies, or the extraordinary “distribution ledger technology” that underpins them.

What we do find extremely concerning, however, is the behavior of the wider market toward something with intrinsic value that cannot be assessed—for the simple reason that it does not have any.


What we find extremely concerning is the behavior of the wider market towards something whose intrinsic value cannot be assessed—for the simple reason that it does not have any.


Cryptocurrencies have no value to assess

If cryptocurrencies were stocks, investors might at least have a chance of getting to grips with their balance sheets and working out what they were really worth but, as it stands, there is simply no metaphorical bonnet to open up and check underneath.

The only real point of comparison for bitcoin, ethereum, and all the other cryptocurrencies are, in fact, traditional currencies.

Every money system is a man-made construct that is dependent for its very existence on an act of faith.

But to have faith in bitcoin is to have faith in something you can’t hold in your hand, pocket, or wallet. It’s trust in a system as weightless as a bubble. The question is: will bitcoin’s success be as fragile as a bubble?

All investments are subject to risk, including the possible loss of principal.

The views expressed herein are those of Schroders Investment Management (Schroders), are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Schroders or Hartford Funds. 

This information should not be considered investment advice or a recommendation to buy/sell any security. In addition, it does not take into account the specific investment objectives, tax and financial condition of any specific person. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. This material and/or its contents are current at the time of writing and are subject to change without notice. This material may not be copied, photocopied or duplicated in any form or distributed in whole or in part, for any purpose, without the express written consent of Hartford Funds.

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