Don’t waste time with Bitcoin, but it’s not a bubble

8 years ago - Published in Finance, Fintech Land, Technical Analysis

Financial theorist and neurologist William Bernstein doesn’t believe that bitcoin fits the classic idea of a bubble; however, he claims he won’t be ‘wasting his time’ on it.

The former American neurologist turned to writing about investing during the 1990s. A few of his popular bestsellers include The Intelligent Asset Allocator, The Four Pillars of Investing: Lessons for Building a Winning Portfolio, and Rational Expectations: Asset Allocation for Investing Adults.

Yet, while he doesn’t think the digital currency shows textbook signs of a bubble, he remains ‘suspicious’ of it. In an interview with CNBC, Bernstein said: "Of the four key areas of investment knowledge — theory, history, psychology, and investment industry practices — the lack of historical knowledge is the one that causes the most damage."

The digital currency is created through a "mining" process in which computers solve a complex mathematical equation and receive bitcoin in reward. Although use in commercial transactions is limited, bitcoin can be traded on exchanges around the world. A surge of interest in bitcoin from investors, including some institutional investors, has helped the digital currency multiply six times in value this year.

His comments join a growing list of critics against the digital currency. Most famous of them all is Jamie Dimon, JPMorgan Chase CEO, who said last month that bitcoin was ‘a fraud‘ and that it was ‘worth nothing.’

Despite those gains, bitcoin doesn't quite fulfill all four criteria of a bubble, Bernstein said.

First, the digital currency hasn't yet become the primary topic of social gatherings, he told CNBC. And second, most people aren't quitting well-paying jobs to speculate in bitcoin. Also, skeptics of bitcoin aren't yet met with anger.The only sign of bitcoin being in a bubble that Bernstein can see is some "whiffs" of extreme price predictions. The most outspoken digital currency proponents forecast bitcoin at least quadrupling in the next five years.

The cryptocurrency market has experienced a surge in price recently. At its highest, bitcoin has soared past the $6,000 mark, making its value worth more than Goldman Sachs, and helping to push the combined market value up to around $170 billion.