THE BOTTOM LINE: Top strategist disses bitcoin as 'Bitcon' and says it meets all 5 criteria of a speculative bubble

Tim Knox

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One of the smartest Wall Street strategists, Richard Bernstein of Richard Bernstein Advisors, recently shared his view of bitcoin. Deeming it “Bitcon,” Bernstein noted that the currency is displaying all five of his criteria for a speculative bubble, namely:

  • There’s plenty of liquidity to facilitate and encourage speculation. Gobal central banks are still providing oceans of easy money.
  • There’s increasing use of leverage. The new ‘bitcoin futures’ markets allow you to buy a lot more of the stuff with less money down.
  • There’s “democratization” of the market as normal people join in. My dad recently asked me about bitcoin. A tennis pro I know asks me about it every time I see him. Financial TV has become crypto-currency TV.
  • There are increasing “new issues” to satisfy the exploding demand for ways to play. There are more than 1,000 crypto-currencies now. And dozens of “Initial Coin Offerings” that have collectively raised billions of dollars.
  • Trading volumes are increasing. The number of crypto-trades per day continues to rise as more and more gamblers take a seat at the table.

Happily for bitcoin fans, Bernstein doesn’t think the bubble will burst anytime soon. What pops bubbles, he says, are two things:

  1. A reduction of liquidity (the Fed choking off the flow of cheap money, for example), and
  2. A sudden lack of new “greater fools” to dive into the market and drive prices higher.

Bernstein thinks the Fed will stay easy for a while. And, so far, there seem to be plenty of greater fools.

So Bernstein concludes that “the crypto-bubble will continue until the Fed and other central banks remove too much liquidity from the economy, the availability of “greater fools” decreases, and the bubble deflates.”

For what it’s worth, I generally share Bernstein’s views.

As I have said for more than four years, bitcoin is the perfect asset for a speculative bubble. There’s a finite supply of it. It has no intrinsic value, which means it can be worth literally anything. And it does have a functional utility. (It allows people to pay for stuff and transact with each other outside the traditional banking and payments system.)

My conclusion four years ago – when bitcoin was $US300 – was that the price could go to $US1 million. I still think that. I also think the price could go back to $US1. It could even do both!

I also think that those who dismiss all bitcoin speculators as fools often miss what might be described as the “speculative maths.”

If bitcoin goes to zero, you can lose 100% of your money. That’s a lot. But it’s also all you can lose.

If bitcoin goes up another 10X, or 100X, or 1000X, meanwhile, you can make 10X, 100X, or 1000X your money.

For those who understand this – and, importantly, take care not to bet more than they are willing to lose – these return odds are attractive. Or were – before bitcoin prices blasted 15X higher this year alone and tennis professionals started urging me and others to buy it.

So, enjoy the bitcoin bubble while it lasts!

By the way, I don’t own bitcoin or any other cryptocurrency. I’m also not “encouraging speculation” – I don’t care whether you buy or don’t buy bitcoin. So please don’t get mad at me if the price eventually collapses.

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