Yale economist Robert J. Shiller, who won the Nobel Prize in Economics in 2013 for his work on “Trendspotting in asset markets,” has recently argued that bitcoin is “sort of a bubble,” and a perfect example of “faddish human behavior.”
To Shiller, despite being a “sort of a bubble” bitcoin won’t disappear, and “may” be with us for a while. While speaking with CNBC, the economist argued the cryptocurrency is glamorous, and revealed it reminds him of the 17th century tulip mania.
The tulip mania saw the price of tulip bulbs skyrocket at the time, until it eventually peaked and crashed in early 1637. The episode is often given as an example when economists refer to bubbles, as it’s seen as one of the first recorded speculative bubbles where a buying frenzy led to irrational justifications for the asset’s value.
Shiller further revealed that while he doesn’t own any bitcoin himself, many of his students bought the cryptocurrency. He added:
"I don't mean to dismiss it. Some smart people went into these and other cryptocurrencies. But it's a story that I think goes way beyond the merit of the idea. ... It is more psychological than something that could be explained by the computer science department."
Bitcoin has recently started recovering from a weeks-long bearish trend that saw tis value drop from over $19,000 to a low of about $6,600. At press time, the cryptocurrency is trading at about $8,050, according to data from CryptoCompare.
To Shiller, part of bitcoin’s success is based on the political ideology of its community. Per his words, “Economists tend to neglect the political side,” which he considers is a big element when it comes to cryptocurrencies. This, as there are a lot of people who no longer trust their government, he said:
“They like the idea that this didn’t come from the government. It came from some real smart computer scientist. They like that. It’s a great story for today’s markets.”
These comments see Shiller join a number of bitcoin naysayers, who claim the cryptocurrency is eventually going to lose either all or most of its value. Other naysayers include former hedge fund manager Jim Cramer, billionaire founder and CEO Ken Griffin, and legendary investor Warren Buffet.
There are, on the other hand, those that believe bitcoin is here to stay. As covered, Wall Street strategist Tom Lee has predicted bitcoin’s price will hit $91,000 by March 2020. Lee seemingly accurately predicted the cryptocurrency market’s recovery, as he estimated US households owe over $25 billion in capital gains taxes for crypto investments.