Analysts at British finance multinational Barclays plc, have likened Bitcoin to an ‘infectious’ disease, and say that its December price peak is likely to be its highest.
Economists working at the company have built a pricing model based on the world of epidemiology – the scientific discipline which studies the spread and control of infectious diseases. The model likens the euphoria around Bitcoin in the months leading up to December 2017 to a contagious disease and assumes that many ‘infected’ patients are now immune.
The rapid gains, particularly during the last quarter of 2017 were attributed to the spread of the ‘bitcoin infection’ through word of mouth and ‘FOMO’ – fear of missing out – among new investors entering the cryptocurrency space.
As more and more and more ‘infected’ people came into the market, prices rose and peaked at just under $20,000 in December. However, the economists state that losses incurred as the market slumped in the first quarter of 2018 have created ‘immunity’ to Bitcoin euphoria among many investors and potential new ones.
The model – which divides potential investors into the categories of ‘susceptible’, ‘infected’ and ‘immune’ – concludes that, as awareness of Bitcoin in developed countries is extremely high, the highest point of the infection has passed, meaning that bitcoin’s price has peaked.
‘This occurs with infectious diseases when the immunity threshold is reached; i.e. the point at which a sufficient portion of the population becomes immune such that there are no more secondary infections,’ the economists said.
Regarding why they believe Bitcoin’s price has peaked, the economists went on to explain their model’s results: ‘As more of the population become asset holders, the share of the population available to become new buyers – the potential ‘host’ population – falls, while the share of the population that are potential sellers (‘recoveries’) increases. Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of sellers to buyers, prices begin to fall. That induces speculative selling pressure as price declines are projected forward exponentially.’
As for other cryptocurrencies such as Ethereum and Litecoin, the analysts believe the trend is the same and that aggregate market cap for cryptocurrency may not pass $780 billion, roughly equal to that of January 2018.
‘We believe the speculative froth phase of cryptocurrency investment – and perhaps peak prices – may have passed.’
Whilst this remains to be seen, it is undeniable that bitcoin has bounced back from multiple price slumps in the past. Furthermore, predicting cryptocurrency prices is notoriously difficult. Governments may use policy to control and predict the value of traditional fiat currencies and firms have established best practices for the financial forecasting of these. Cryptocurrency prices meanwhile are based purely on supply and demand, which, as the technology around them and blockchain evolves, can vary greatly.
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