Is Bitcoin Booming… Or is it Bubbling?

One of the most important works on investing and global finance was written way back in the 1970s. At the end of an era of Opec, oil crisis and the introduction of the Wall Street and Main Street correlation, Charles P. Kindleberger wrote Manias, Panics, and Crashes: A History of Financial Crises.

As an avid reader I devoured it a few summers ago in a matter of days. Fascinating was the explanation of an investment cycle for any good that turned out to be a bubble, whether it was the Dutch Tulip crash, the South Sea Exchange scandal, the Wall Street panic of 1929 or the Kennedy flash crash of 1962.

Kindleberger explained in text what was to become known as the different phases. In the beginning there are only angel investors and people are optimistic about the good as they believe it has potential. As the attention span turns from excitement into thrill, at a certain point the euphoria phase is reached where it is what everyone talks about. This is usually the moment before a selloff is due. In stock market terms this has become known as buy the rumor, sell the news, or in other words: when everyone hears about it, that is when it’s too late.

Bitcoin’s current case

Returning to the topic at hand, one must admit that Bitcoin has seen its fair share of media coverage in the past few days.

Although normally we are a choice between the regular group of media outlets that write about all things crypto and Bitcoin, this week we’re joined by the BBC, ABC News and other major media players, all covering Satoshi’s crypto coin. One therefore has to wonder whether a (temporary) peak has already been reached when it comes to attention and therefore a selloff is due before a further upswing can take place.

Then again, when I heard Paul Tudor Jones, the billionaire hedge fund manager who invested in Bitcoin back in May declare on CNBC earlier this month that he had a “small” position in bitcoin, which he described as like:

Investing with Steve Jobs and Apple or . . . Google early.

You’ve got this group . . . that is dedicated to seeing bitcoin succeed in becoming a commonplace store of value and transactional to boot. I’ve never had an inflation hedge where you have a kicker that you also have great intellectual capital behind it.

Well in that case, if this classic investor is that excited about it, I can see others still joining as well. Therefore, a pullback might be necessary before any further upswing is due, but a bubble this seems not (at least to me). 2020 Bitcoin is certainly different from 2017 Bitcoin.

On top of that, the acceptance of PayPal and many public companies stepping in is another bullish sign.