BofA’s blunder: How bitcoin turned a ‘crash’ into a 1,000% surge
It’s been seven years since a Bank of America economist called bitcoin the “biggest bubble in history”
Tang Yan Song/Shutterstock and Adobe modified by Blockworks
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When it comes to whether bitcoin is (or was ever) a bubble, the late John McAfee said it best.
“Those of you in the old school who believe this is a bubble simply have not understood the new mathematics of the Blockchain, or you did not [care] enough to try.
“Bubbles are mathematically impossible in this new paradigm. So are corrections and all else.”
That was in early December 2017, when bitcoin traded at under $17,000. It peaked one week later, stopping just shy of $20,000 to cap off a nearly three-year bull market.
Four months passed, and bitcoin slipped by two-thirds to less than $7,000, marking the first act of a bear market that lasted only one year.
If only Bloomberg and Bank of America chief investment strategist Michael Hartnett had listened to McAfee.
On this date in 2018, Bloomburg posted an article called “Bitcoin, the Biggest Bubble in History, Is Popping.” In analysis cited the article, Hartnett’s team plotted bitcoin’s most recent bull market against well-known asset bubbles — the Wall Street crash that ended the Roaring Twenties, the South Sea Company and Mississippi bubbles in the 18th century, and the often-cited Dutch tulip craze a century earlier.
But there are bubbles, and then there’s price discovery.
Dutch tulips had indeed exploded from a single guilder in early 1635 to 60 guilders two years later — a 5,900% rally — before collapsing by more than 99% in a matter of weeks.
Bitcoin, meanwhile, had managed 8,900% in the three years leading up to its December 2017 all-time high, starting at $224.
That’s more returns than the South Sea Company, Mississippi Company, and Roaring Twenties bubbles combined.
The original BofA chart implied bitcoin was the “greatest asset price bubble” in history
But where the South Sea and Mississippi Companies folded entirely after their individual markets tanked, and the Dow languished for nearly a decade through the Great Depression, bitcoin itself never suffered such a drastic fate.
Despite a string of bankruptcies for over-leveraged bitcoin miners — which helped to push bitcoin down by another 50% in the nine months following Hartnett’s note — bitcoin reversed course significantly over the next two quarters in what’s considered a short but legitimate bull market cycle.
Bitcoin returned to its December 2017 all-time high three years later almost to the day, whereas it took 15 years for the Nasdaq to do the same following the bursting of the dot-com bubble, and almost a decade longer for Japan’s Nikkei 225 after its own market mania in the late ‘80s.
Take that, tulips!
Bitcoin has been declared dead 67 more times since Bloomberg’s article, and it’s up more than 1,000%.
Which, of course, makes the notion of a “bitcoin bubble” mathematically impossible, just like McAfee said. RIP.
— David Canellis
Did You Know?
If Sir Isaac Newton — the famed mathematician who defined our modern laws of physics — was alive today, there’s a good chance you’d see him in the trenches.
Newton built up a strong diversified portfolio of government bonds and stocks in the early 18th century, and he was even appointed as Master of the Royal Mint for more than 30 years due to his scientific achievements.
Despite this, Newton was still caught in a pump and dump for a stock he’d been holding for years — the South Sea Company.
The South Sea Company was a joint-stock government enterprise intended to stymie spiraling national debt by exploiting what were supposed to be massively lucrative trade routes with Spanish territories across South America.
Despite very low revenue at the time, hype in Britain quickly reached fever pitch and the stock went nearly 10x in the first six months of 1720.
But with no actual profits, it resembled a Ponzi scheme more than a bona fide company, while insiders manipulated the market for massive personal gain.
Legend has it that Newton had, unfortunately, cashed out too early, FOMO’d back in at the top, and bought massively on the way down, losing today’s equivalent of $25 million in the crash.
“I can calculate the motion of heavenly bodies, but not the madness of people,” he supposedly said, and forbade anyone in earshot from mentioning “South Sea” ever again.
If only they’d heard of HODLing in the 1700s.
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