Cryptocurrency Bubble! says Robert Shiller

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Cryptocurrency bubble is happening says Robert Shiller

[dropcaps type=’normal’ font_size=’45’ color=’#191919′ background_color=” border_color=”]A[/dropcaps]decade earlier he wrote the book “Irrational Exuberance” which was essentially a book on the path of bubbles.

Robert Shiller commented on the state of cryptocurrencies. In an interview with Quartz, he was quoted as saying that the Bitcoin market was in a bubble.

Who’s Shiller?

Economist Robert J. Shiller is the Sterling Professor of Economics at Yale University. He received the 2013 Nobel prize for economics along with Fama and Hansen [GMM for econometrics]. Fama which has been accorded the title of Father of Finance was the economist behind the Efficient Marker Hypothesis (EMH). It was ironic that Shiller who pushed for the irrationality of agents was awarded the Nobel Prize in economics together with Fama who was behind EMH.

Why a Bitcoin bubble?

Shiller commented that the increased use of media allowed for the spread of information. I will refer to information theory on this issue, it is dynamic and is thus a ‘revolving door’ worth looking into. Shiller specifically mentioned Bitcoin within the cryptocurrency bubble. And we will leave it at that, but there is sufficient understanding that he could have been referring to the general cryptocurrency market as a whole. In this case, it would include Bitcoin and other variants such as Ethereum, Dash, Litecoin. Shiller wrote the book titled Irrational Exuberance and has mentioned of the several factors required for markets to be considered a bubble. In the first edition of Irrational Exuberance, he had correctly pointed out that a stock market bubble caused by irrationality would result in damaged balance sheets far beyond what most would imagine it to be.[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146163185{padding-top: 50px !important;padding-bottom: 44px !important;}”][vc_column width=”1/3″][vc_single_image image=”63″ img_size=”full” qode_css_animation=””][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”30″][/vc_column][vc_column width=”1/3″][vc_single_image image=”64″ img_size=”full” qode_css_animation=””][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”30″][/vc_column][vc_column width=”1/3″][vc_single_image image=”65″ img_size=”full” qode_css_animation=””][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”30″][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146184322{padding-bottom: 70px !important;}”][vc_column offset=”vc_col-lg-offset-1 vc_col-lg-10 vc_col-md-offset-1 vc_col-md-10″][vc_column_text]

Shiller proven Right


(Note that this was written on the 6 Sep 2017)

 

The crypto market faced a crash of sorts. The largest crash occurred slightly more than a month ago for which many cryptocurrencies saw their valuations fell by as much as 50%, during that period, the price of 1 Bitcoin fell to as low as US$ 1950. Since then prices have recovered, with BTC reaching new highs of US$ 5,000 prior to the correction that occurred two days ago.

With such high volatility it makes cryptocurrencies a weird option to consider when trying to enter/exit the market. According to the Bitcoin Volatility Index provided by highcharts.com the latest 60-Day BTC/USD volatility is 5.51% on Sep 4.

In contrast, the 60-Day Gold/USD Volatility was 0.55% and the 60-Day THB/USD Volatility was 0.19%.

In direct comparison, the volatility of BTC is 10.018 times of Gold to USD and 29 times of Thai Baht to United States Dollars. That is a huge amount of volatility when put into perspective, and can be dangerous to many participants of the markets, especially margin traders since the volatility can be built into the system. It does not take much to see the volatility of the charts, but the magnitude can only be understood through the comparison of numericals.

 

ICO Craze

Contributing to the problem. ICOs also known as Initial Coin Offerings have been able to raise huge amounts of money with an ICO known as EOS raising US$ 200 million in five days. There is so much money going around such that a token known as “F***” [Author’s note: I added the 3 asterixis, the token actually uses the 4-letter word as its ticker and is traded on a few major cryptocurrency exchanges today] was able to raise US$ 30,000 even though the individual that created the token specifically said that he would use the funds given to him to purchase electronics for himself. What is the plausibility of this happening with fiat currency? What exactly is cryptoeconomics? See a breakdown of the definitions here[/vc_column_text][/vc_column][/vc_row][vc_row row_type=”parallax” parallax_content_width=”in_grid” text_align=”center” background_image=”66″ full_screen_section_height=”no”][vc_column][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”177″][icons icon_pack=”font_elegant” fe_icon=”icon_quotations” size=”fa-lg” type=”square” custom_size=”45″ custom_shape_size=”40″ border_radius=”100″ border=”yes” target=”_self” icon_color=”#ffffff” icon_hover_color=”#141212″ background_color=”rgba(255,255,255,0.01)” hover_background_color=”#ffffff” border_color=”#ffffff” border_width=”1″][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”35″][vc_column_text]

Economics is (now) about emotion and psychology.

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– Robert J. Shiller

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Clampdown

On 4th September, the Chinese authorities took regulatory actions against Initial Coin Offerings. The authorities provided guidance to return amounts back to the investors. Shortly after, Hong Kong and South Korean activities signaled a harder stance against ICOs. This has been interpreted by the cryptocurrency world as a negative stance taken by the largest adopters, the Chinese.

There’s a need to continue to observe the cryptocurrency world through crypto economics. It is the main factor that is driving the growth of cryptoeconomics development as a whole. A crash would cause a slowdown in other developments such as blockchain frameworks.

Academics speak up on cryptocurrencies

Robert J Shiller is the latest academic to speak about Bitcoin and cryptocurrency in general. But he was not the first. There is a huge amount of academics that are researching on incentives, information, and rewards within blockchain frameworks.I have written about Professor of Economics Dr Dimitri’s recent work titled Bitcoin as a Mining Contest, you can read the review here.

References

John Detrixhe (2017). Robert shiller wrote the book on bubbles. he says “the best example right now is bitcoin.” Quartz. Retrieved from https://qz.com/1067557/robert-shiller-wrote-the-book-on-bubbles-he-says-the-best-example-right-now-is-bitcoin/[/vc_column_text][/vc_column][/vc_row]

3 thoughts on “Cryptocurrency Bubble! says Robert Shiller”

  1. Robert Nordstrom

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  2. Robert Nordstrom

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