Monday, 16 April 2018

Bitcoin mania is passing just like the flu season

I've generally avoided blogging about Bitcoin or other cryptocurrencies (with one exception). To be honest, I've been waiting for the whole Ponzi house of cards to collapse. However, notwithstanding my bearish views on Bitcoin, I have been following the development of cryptocurrencies as they make their way through the hype cycle, so I couldn't help but notice this article by Frank Chung on last week:
Bitcoin's wild price rise and subsequent crash has been likened to the spread of an infectious disease which peters out as more people become “immune”, just like flu season.
Analysts at investment bank Barclays developed a pricing model for the cryptocurrency based on epidemiology — the study of the spread of disease through populations — which divides the pool of potential investors into three groups, “susceptible”, “infected” and “immune”.
“Like infection, transmission — especially to those with ‘fear of missing out’ — is by word-of-mouth, via blogs, news reports and personal anecdotes,” Barclays analyst Joseph Abate said in a client note on Tuesday, Bloomberg reported.
“However, once full adoption is approached, the price decline is sustained and rapid.
“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. That induces speculative selling pressure as price declines are projected forward exponentially.
“This occurs with infectious diseases when the immunity threshold is reached, [that is], the point at which a sufficient portion of the population becomes immune such that there are no more secondary infections.”
I hadn't thought about the rise of Bitcoin as being like the short epidemic of SARS or bird flu, but having seen it in print, it does make a lot of sense. Of course, being infected by Bitcoin hasn't proved fatal for investors. Yet.

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