The cryptocurrency markets are in doldrums, and rating agencies are correlating them with different bubbles and scams that global markets had faced in the last few decades. Morgan Stanley strategist Sheena Shah sees enormous resemblances between the cryptocurrency market behavior and the dot-com bubble – the only exception being the 15 times higher growth in bitcoin price.
Sheena Shah has based its prediction on following assumptions:[1]
- The Nasdaq and bitcoin both surged 250 to 280 percent during the peak time.
- Bitcoin prices plunged almost 45 to 50 percent during each bearish trend; the price movement was similar to Nasdaq’s behavior 18 years ago.
- The Nasdaq had five price declines during the price crash in 2000, which is identical to the averaging amount of 44 percent.
- Each bitcoin rally before the downtrend saw volumes fall. Shah said both bitcoin and the Nasdaq always faced falling trading volumes ahead of the follow-up rally.
Source Image: coinmarketcap.com[2]
But Sheena Shah Forget to Paint the Future Picture
Undoubtedly Morgan Stanley’s strategist is certainly right. Shah has outlined several key factors that are similar to the dot-com bubble. Bitcoin and other cryptocurrencies are moving on speculation, and their trading volume continues declining with sideways movement. It’s also true that increasing trading volume doesn’t suggest higher trader interest; the higher volume could also be an indication of higher selling activities.
“Rising trade volumes are thus not an indication of more investor activity but instead a rush to get out,” Sheena Shah said.
However, the strategist didn’t look at the price performance of NASDAQ after the dot-com bubble burst. NASDAQ recovered steadily at the beginning of 2003 following a two year of downward trends. NASDAQ currently stands around 7344 points, significantly higher from the 5000 points NASDAQ had hit during the peak of the dot-com bubble.
In case of cryptocurrencies, it’s too early to predict the future price performance of bitcoin and other digital currencies. The market forces have refused to consider them as a medium of exchange and an alternative currency, and they have several valid reasons to support their denouncement – the lack of fair value is amongst the biggest reason for their criticisms. [3]
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References
- ^ assumptions (cointelegraph.com)
- ^ coinmarketcap.com (screenshots.firefox.com)
- ^ medium of exchange and an alternative currency (cryptocurrencynews.com)
- ^ Twitter (twitter.com)
