Bitcoin: Bubble, Or No Bubble?
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whelan at The Wall Street Journal in New York.
How big was Bitcoin's price decline and what question does it raise about a bubble?
Bitcoin is down big this year, but does it represent a bubble? And if it does, what should we have learned from past investment bubbles? We'll discuss with The Wall Street Journal Heard on the Street columnist in a moment. First, these money and market stories you should know.
What economic headlines set the stage before the Bitcoin discussion?
Private sector workers' average hourly compensation, including both pay and benefits, rose 2.9 percent from a year earlier in the third quarter. The annual gain was a slight uptick from the prior quarter. Notably, the gain was led by a 3 percent increase in wages and salaries. It was the first period since mid-2016 that base pay increased at a faster rate than benefits. Supplemental pay, which includes bonuses and overtime pay, rose 10.9% from a year earlier, though it was the smallest annual gain for the category in a year. And consumer spending during the holidays is fueling an already hot U.S. economy, but economists have a wary eye in 2019. Nearly half of economists who responded to a survey by the Wall Street Journal said they viewed the U.S.
dispute with Beijing as the number one risk for 2019. and some 20% cited financial market disruptions. About 12% pointed to a slowdown in business investment as a risk for next year. And when might the economy slide into recession?
How did Bitcoin's peak and subsequent fall compare in price terms?
More than half of economists polled expected the next recession to start in 2020, and just over a quarter expected it to start in 2021. Just 10% of economists forecast a recession starting next year.
Bubble? What bubble? By now you've heard plenty about Bitcoin's epic 82% decline from its peak roughly one year ago. But is the cryptocurrency just in a funk and ready for a turnaround? Well, that depends on who you ask. Let's bring in Heard on the Street columnist Spencer Jacob to sort all this out for us. So, Spencer, at the Bitcoin peak, there were plenty of people who didn't want to believe it was a speculative craze. And the question about whether you're going to buy a Lamborghini was actually part of our vernacular. Exactly.
Yeah. Now it's called, you know, when Lambo is in the Urban Dictionary, which is when will I be able to buy a Lamborghini with my cryptocurrency winnings?
So it sat at $20,000. Bitcoin did December of 2017.
What arguments did proponents use to claim Bitcoin wasn't a bubble?
And our last count was in the neighborhood of $3,500. Yeah.
Yeah, I think about 3,300-something this morning. It depends on which exchange you look at. But yeah, it's down very substantially from the peak. And the thing is that people who are real big believers in the wealth, I guess, not even so much the blockchain, but the wealth that can be still gained from cryptocurrency... always pointed out that, well, there were lots of crashes. It wasn't even the worst crash. I think this is now almost on par with the worst previous crash. But there have been lots of peaks and valleys in a very long-term ascent for the values of these cryptocurrencies. And so why isn't this just like another one, you know, that the road isn't kind of an upward sloping ascent forever?
Well, in your story, you discuss the findings of a Harvard University lecturer who was making all these points and arguments why it was not a bubble waiting to happen. And then it did. But he had a whole list of arguments and a whole list of unchecked boxes to make the argument that, in fact, okay, this could go on for a very, very long time.
Yeah, the person I spoke with, and I read his book some years ago, apparently it's coming out in a new edition. I think it's a really good framework for understanding bubbles generally, Vikram Mancharamani. And he, it's called Boom Bustology. He has certain hard criteria for deciding if something is a bubble. And, you know, you can scoff at an academic saying, this is a bubble, this isn't a bubble. You know, what does he know? Doesn't have skin in the game.
Which academic criteria did Vikram Mansharamani apply to test whether Bitcoin was a bubble?
He did something very interesting, which is back in March 2017, when it had just crossed $1,000. This is up from, you know, 20 cents back in 2010. He said, no, I disagree. I don't think that this really meets the criteria, even though it's up by a million percent or more.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
How big was Bitcoin's price decline and what question does it raise about a bubble?
0:09–0:22
3
What economic headlines set the stage before the Bitcoin discussion?
0:22–1:22
4
How did Bitcoin's peak and subsequent fall compare in price terms?
1:22–2:24
5
What arguments did proponents use to claim Bitcoin wasn't a bubble?
2:24–3:55
6
Which academic criteria did Vikram Mansharamani apply to test whether Bitcoin was a bubble?
3:55–5:13
7
How did mainstream indicators—like taxi drivers and retail investors—signal a speculative top?
5:13–7:52
8
What risks did leverage and extreme investor behavior create during the Bitcoin craze?
7:52–9:43
Speakers
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