Bitcoin’s Rise Resembles Spread of Infectious Disease: Barclays (LON:BARC) Analysts
As per a group of analysts at Barclays Plc, the sudden boom in Bitcoin prices late last year closely resembles the spread of an infectious disease, and the current collapse may be owing to buyers having developed ‘immunity’ to the lure of the digital currency.
According to the analysts, the increased speculation in the digital currency market during the latter half of 2017 was something akin to flu season, which is now starting to wear off, leading to the drop in prices.
Bitcoin had a blinding bull run in 2017, when its price rose by more than 1,300%, shooting past $20,000 around Christmas time. However, it has since come crashing down, going as low as $6,600 and losing a huge chunk of its market cap.
The analysts at Barclays, led by Joseph Abate, created a pricing model for the digital currency which is informed by terms and concepts from epidemiology; according to this model, Bitcoin’s best days are likely behind it.
As per the model, Bitcoin investors are categorized into three groups – susceptible, infected and immune. The ‘infection’ spreads when buyers spread the word among those they know, inspiring a “fear of missing out”. These buyers then become the infected.
However, as the population of buyers increases, the population of potential new buyers drops and that of potential sellers increases; in this scenario, the population gradually becomes immune to ‘catching’ speculative interest in the cryptocurrency, leading to a drop in prices.
In a note to clients, the analysts elaborated:
“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 per this logic, the analysts conclude that Bitcoin has probably peaked, and is unlikely to hit similar highs again; as is the case with infectious diseases, secondary infections do not occur after the immunity threshold is reached and most of the population becomes immune.
“We believe the speculative froth phase of cryptocurrency investment – and perhaps peak prices – may have passed,” the analysts concluded.
This article appeared first on Cryptovest
