Bank of America, Barclays, Swiss researchers – predict the burst of the Bitcoin bubble

The short-term picture of almost all the cryptocurrencies looked red on Monday and the last 24-hour picture for almost all the cryptocurrencies was also in the red. On the weekend, analysts, enthusiasts, and media commented on the possibility of Bitcoin bouncing back above $7,000. But the current slant of BTC back to $6,700 has everyone perplexed about the breakdown of the market. Some say that a recent Bank of America Merrill Lynch [BoAML] report stating that Bitcoin is a bubble could be the reason for the drop.

According to Bank of America Corp. the greatest bubble in history is popping. The cryptocurrency is tracking the downfalls of the other massive asset-price bubbles in history, bank’s analysts lead by Chief Investment Strategist Michael Hartnett wrote this Sunday.

To illustrate their point, the second biggest bank in the US prepared a diagram showing overlaid graphs of rises and falls of several big businesses and industries. Among them the tulip craze, Mississippi Company, South Sea Company, Gold, and the great stock exchange crash of 1929. And the graph of Bitcoin seems to be following their fate rather closely.

But to us it seems a rather weak point. It’s easy to understand why BoA has such stance towards digital currencies. In February, Bank of America issued an internal warning about digital currencies and included the technology among the “risk factors” for the first time.

Similar to BoA, analysts at Barclays Plc concluded that Bitcoin has probably peaked and likened it to “infections” that spread by word-of-mouth. Barclays analysts explained in a note to clients on Tuesday:

“As more of the population become asset holders, the share of the population available to become new buyers — the potential ‘host’ population — falls, while the share of the population that are potential sellers (‘recoveries’) increases. Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of sellers to buyers, prices begin to fall.”

According to Barclays, the main variable determining when Bitcoin price starts to decline is the share of the population aware of the cryptocurrency and the share willing to invest. Analysts wrote the evidence from surveys suggests that awareness is nearly universal and that the susceptible population is small hence the decline of Bitcoin.

In line with the Barclays’s theory, a study published by researchers from Switzerland on the predictability of Bitcoin bubbles forecasts Bitcoin’s market might fall as much as $44 billion, or 35%, by the end of 2018:

“…Assuming continued user growth in line with the regression of active users starting in 2012, the end of 2018 Metcalfe predictions for the market cap are 77, 39, and 64 billion USD respectively… less than half of the current market cap.”

The fight of traditional institutions against cryptocurrencies rages on. Time will tell which side will prevail.

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