The cryptocurrency mania of late 2017 spread like an infectious disease but we may have already reached the immunity threshold, meaning speculative interest in the likes of Bitcoin has possibly already peaked, says a new research report from Barclays.
On Wednesday, Bitcoin saw its price surge by around a thousand dollars to more than $7600, but the price is still way down on the heady days of December when the currency peaked just shy of $20,000.
In its 2018 Equity Gilt study, Barclays used a model to compare the crypto-craze with the spread of an infectious disease through an investor population – some of which are infected, others who are not but are vulnerable, and a third group made up of the immune.
“We developed a theoretical model of an asset price with a pool of speculative investors and compared it with actual Bitcoin price behaviour to see what it might imply for the future dynamics. The model has clear parallels with compartmental models of the spread of an infectious disease in epidemiology,” says the report.
As hype – through news reports, social media and word-of-mouth – grows the price of cryptocurrencies rises.
But: “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.
“Analogously, this occurs with infectious diseases when the immunity threshold is reached; ie, the point at which a sufficient portion of the population becomes immune such that there are no more secondary infections.”
The collective value of all cryptocurrencies hit a value of nearly $800 million in December but this has plummeted to just $260 billion. Barclays predicts that the peak is unlikely to be passed and suggests that any long-term demand for Bitcoin and its ilk will come from “low-trust” sectors.
“Unlike past peaks in Bitcoin prices, the survey evidence, based on our modeling, suggests that the speculative bubble in crypto currencies may have passed its peak.”