Asset bubble refers to the fact that the market price of financial assets or commodities is far higher than its actual price and intrinsic value, leading to false prosperity in the market. Looking back at the history of human development, there have been five large-scale asset bubbles in total. The recent performance of digital cryptocurrencies has continued to refresh the lowest level in the year, which to some extent reflects the shortcomings of its application in the real world. In 2017, American economists Kenneth Rogoff and Robert Schiller wrote "Crypto-Fool's Gold?" and "What is Bitcoin Really Worth? Don't Even Ask" respectively, arguing that the speculative enthusiasm for digital cryptocurrencies has far exceeded In its practical application, it resembles bubbles that have appeared in markets in the past.

secondary title

Five major asset bubble events

1. 1634-1637, "The Tulip Bubble" in the Netherlands
   

   In the 1730s, the Netherlands produced a "tulip bubble". Due to its scarcity, tulips were once regarded as a symbol of wealth and honor, which triggered a lot of market speculation and pushed up the market price of tulips. From November 1636 to February 1637, the price of tulips increased more than 20 times. At the peak of the price, the price of a tulip can be equated with the price of a mansion. But starting from February 4, 1637, the market suddenly collapsed, and within six weeks, tulip prices fell by an average of 90%.

2. In 1719, the French "Mississippi Bubble" (The Mississippi Bubble)

   image description

   

   

   Source: Sun Xiaoji, "Getting Poor: The South China Sea Financial Bubble in 1720"

3. In 1720, the British "South Sea Bubble" (The South Sea Bubble)

   image description

   

   
   

4. 1920s, the Great Depression in the United States

   At that time, the U.S. economy was developing rapidly, and its share of world trade and capital export ranked among the top in the world. But behind the prosperity, many potential crises are hidden, such as the large gap between the rich and the poor in society, which leads to a serious imbalance between supply and demand in the market. Driven by false prosperity, unsupervised banks encourage people to consume ahead of schedule, a large number of speculative behaviors in the financial market to mortgage real estate to buy stocks, stock prices skyrocketed, buying and selling at prices several times the actual price, the stock securities market Overheating occurs, and non-performing assets within banks continue to pile up. On October 24, 1929, the Wall Street stock market, which had maintained a bull market for 18 months, suffered a major crash, and stocks plummeted.

   
   

5. Japan's financial bubble in the 1980s

   secondary title

The Commonality of Asset Bubbles

Asset bubbles can be understood as asset prices continue to rise in a continuous process. This price rise makes people expect that prices will rise further, and constantly attracts new buyers to enter the market. As prices continue to rise and speculation With the continuous increase of capital, the price of the asset is much higher than the corresponding entity price. New buyers begin to examine the real value of the asset. Expectations are reversed, funds begin to flow out, purchase orders decrease, and asset prices begin to fall continuously , The market sentiment panicked, sellers kept selling their assets to avoid expanding losses, asset prices plummeted, and asset bubbles burst.

secondary title

Is cryptocurrency a bubble?

From the perspective of price and volatility, Bitcoin has irrational expectations that generate bubbles.In fact, there have been two major crashes in the history of Bitcoin, namely:

The first time was in 2011, from $0.3 at the beginning of the year to $32 in June, an increase of more than 105 times. But in the following months, the price of bitcoin continued to decline, falling to $2 in November, a drop of 94%.

image description

Source: Coinmarketcap

image description

Source: Coinmarketcap

Interestingly,

Interestingly,Bitcoin is continuing the price curve of several major asset speculative bubbles in history。

Some mainstream economists, financiers, and politicians believe that there is an obvious speculative bubble in Bitcoin. According to statistics from the American investment company Convoy Investments, Bitcoin has risen more than 64 times in the past three years, far exceeding the 50-fold increase in the tulip mania in the 17th century in three years, and may become one of the largest speculative bubbles in human history. Robert Schiller, Nobel laureate and professor of economics at Yale University, pointed out in 2017 that digital cryptocurrency is an obvious asset bubble. Nobel laureate Paul Krugman also wrote in a 2018 New York Times column that Bitcoin and other digital currencies represent a 300-year recession. Warren Buffett has also repeatedly expressed his negative attitude towards cryptocurrencies. He believes that cryptocurrencies are not a value-creating asset.

references

references

1. Xie Ping, Zou Chuanwei, Liu Haier, "Internet Finance Handbook", published by Renmin University of China Press in April 2014.

2. Zou Chuanwei, Harvard Mason Scholar: Nine Economic Issues of Digital Cryptocurrency and Blockchain Finance

3. Mitsuru Taniuchi, "Japan's Economic Evolution and Transcendence", published by Jiangsu People's Publishing House in April 2016.

4.Rogoff, Kenneth, 2017, “Crypto-Fool’s Gold?”, Project Syndicate, Oct. 9, 2017.

5.Schiller, Robert, 2017, “What is Bitcoin Really Worth? Don’t Even Ask”, New York Times, Dec. 15, 2017.