Bitcoin problems. Nobel laureate warns of a cryptocurrency bubble

Since the beginning of June, the price of bitcoin has been extremely stable and hovered around $30,000. However, this is a weak exchange rate, especially compared to the record high of November 2021, when a “coin” was paid for around 68,000.

The price of Bitcoin is today at the level of psychological support defended by the demand. If it were busted, it could drop to $25,400, then even $22,000. On the other hand, in case of a possible rise of bitcoin towards higher levels, it will be necessary to overcome the resistance around $33,000. Only then will it be possible to continue climbing.

Meanwhile, Paul Krugman recently re-listed the downsides of cryptocurrencies. The Nobel laureate believes that bitcoin has no practical application, he also sees no advantages to “coins” over conventional means of payment, and points out that cryptocurrencies are extremely popular with scammers and money launderers.

Worse, Krugman thinks the cryptocurrency craze is reminiscent of people’s unwavering faith in the US housing market before it crashed in 2007 and triggered the global financial crisis. During the housing bubble of the time, only a small group of investors predicted a gigantic collapse in the subprime mortgage market.

This group included John Paulson and Michael Burry described in the book “Big Short” (later filmed). Several years ago, they concluded that housing prices had reached unsustainable levels. They bucked the prevailing view that nothing to worry about was happening and played the right way against seemingly safe mortgage-backed securities. Michael Burry, a hedge fund manager, has personally obtained $100 million in wealth and made over $700 million in profit from his investors.

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Paul Krugman recalls that during the housing bubble, Americans could not believe that house prices were as high as the pessimists claimed or grasp that trillions of dollars could evaporate from the housing market. “At the time, it seemed unlikely that the markets could be so wrong,” concludes the Nobel laureate.

Popular in the US, a giveaway from CNBC and stock analyst Jim Cramer called on investors to make smart decisions in the cryptocurrency market. According to him, virtual currencies should always constitute a modest part of the investment portfolio as the most risky element.

– Cryptocurrencies are not Coca-Cola, they are not Apple. People should be free to engage in this asset class, but shouldn’t view it as a “safe haven” or a “safe investment,” Cramer said.

He was very critical of bitcoin in the past, but in 2020 he changed his mind and bought bitcoin “coins” for the first time. In April 2021, he revealed that he was able to pay off his mortgage using digital assets. Today, he admits that he also became an owner of ethereum after becoming interested in the NFT market.

Jim Cramer says cryptocurrencies should only be a small part of a retail investor’s portfolio. He does not recommend allocating more than 5%. means. He also criticizes the idea of ​​borrowing money and taking out loans with the intention of investing in digital assets.

On the other hand, a famous presenter and analyst claims that cryptocurrencies may become a common currency in the future. He adds that despite the inherent risks of owning cryptocurrencies, he has no intention of discouraging anyone from investing in them. Cramer sees “fortunes made on them” and does not exclude that the next groups of investors will earn a lot on virtual currencies.

Many analysts point out that retail investor capital will not return to the cryptocurrency market too quickly, as people’s savings dwindle due to inflation and high fuel prices. However, they point out that many indicators still speak to the long-term growth prospects of bitcoin and other digital currencies.

Over the past 10 years, the rate of return on investment in bitcoin has been well above the rate of investment in the S&P500 and Nasdaq. Therefore, for many people, the oldest cryptocurrency in the world is still a kind of “lottery ticket” and part of a long-term diversified portfolio.

Nearly 66% of the total bitcoin supply is now in the hands of long-term holders who hold it for at least a year. This can be taken as evidence that the market is maturing. However, it is worth returning to the words of Paul Krugman that in 2007 almost no one doubted the solid foundations of the real estate market, and immediately after that the bubble burst.

Jacek Brzeski

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