Bitcoin Bubble, Toil And Trouble?

As we get set to break out the champagne bottles to usher in a New Year, we can look back and say with certainty that 2017 was the Year of Bitcoin. Sitting at just under US $1,000 at the beginning of 2017, the price for a single Bitcoin escalated rapidly to sit just over $19,000 in mid-December. At the time of writing, the unit Bitcoin price has eased back considerably to roughly $13,500

An important, even if somewhat underappreciated, side-issue is that the reverberating financial interest in Bitcoin has played a hand in bolstering the value of the broader cryptocurrency market, whose aggregate value has risen from $18 billion at the beginning of 2017 to over $500 billion.

An even less appreciated point is that the exponential Bitcoin trend-price increase parallels the emergence of cryptocurrency. Additionally, the distributed public data ledger known as blockchain that cryptocurrencies have become cultural and political phenomena. This is reflected in the exuberant level of mainstream and social media interest in cryptocurrency. And the heightened attention given to Bitcoin by central bankers, tax authorities, and other political actors.

For financial analysts, policymakers, and cryptoconomists the key question remains: is Bitcoin a bubble? Cryptocurrency detractors have wasted little time in proclaiming the pre-Christmas fall in Bitcoin’s price as the definitive end of the bubble.

As with most other experiences reflecting the actions of innumerable people – or, as one might say, “the result of human action, but not design” – there are basically two schools of thought about how Bitcoin prices should be interpreted. At the risk of simplification, these can be divided into the stasist (neoclassical economic) and dynamist (Austrian/evolutionary economics) perspectives.

Cryptocurrency detractors have wasted little time in proclaiming the pre-Christmas fall in Bitcoin’s price as the definitive end of the bubble.