Joost van der Burgt, a policy advisor at the Federal Reserve Bank of San Francisco, has recently argued that if bitcoin is indeed in a bubble, it’s still in its early profit-taking stages, and panic is set to follow, according to MarketWatch.

The policy advisor’s point of view uses economic fragility theories from the late US economist Hyman Minsky, who defended an asset bubble has five states: displacement, boom, euphoria, profit-taking, and panic.

Per van der Burgt, bitcoin’s displacement phase came in the years after its creator Satoshi Nakamoto released the white paper, as it wasn’t well-known and started propagating thanks to bitcoin evangelists. The cryptocurrency only traded above $100 in 2013, and even then it had minimal trading volume.

The second phase, to van der Burgt, was characterized by the cryptocurrency’s price rise. He wrote:

“The subsequent ‘boom’ phase is characterized by prices rising slowly at first, but then gaining momentum as more and more participants enter the market, fearful of missing out.”

Joost van der Burgt

That fear of missing out (FOMO) saw companies add blockchain-related terms to their names, which saw their shares surge over speculation. Further, the economist argued, various celebrities started jumping in on the cryptocurrency bandwagon by endorsing various ICOs. Some projects, like Floyd Mayweather-endorsed Centra Tech, were exposed as frauds.

As the cryptocurrency started surging thanks to all the hype created, it entered the euphoric stage, which reportedly has direct parallels with the period leading up to the 2008 financial crisis. Van der Burgt wrote:

“The euphoria phase is also when people start to borrow extensively to finance their investments. According to a recent survey, 18% of active bitcoin investors have financed their investments by credit card, and 22% of this group indicated that they have not yet paid off their credit card balance.”

Joost van der Burgt

Now, the flagship cryptocurrency is entering the early profit-taking stages, the policy advisor said. According to CryptoCompare data, the flagship cryptocurrency surged from little under $1,000 to nearly $20,000 last year, and has since plummeted to a $6,800 low. At press time, bitcoin is trading at $7,715 as it started recovering.


Per Minsky’s theory, this stage sees so-called smart money abandon the market, right before the bubble pops and panic sets in. That happens, van der Burgt stated, when “reality sets in” and bitcoin’s price crashes.

The economist acknowledged, however, that he could be wrong, and that the flagship cryptocurrency is different than anything we’ve seen before. He said:

“Then again, maybe bitcoin is different than anything we have seen before, and maybe a decade from now its market capitalization will be sky-high as it attains the status of a new global currency.”

Joost van der Burgt

Various bitcoin bulls seemingly believe this second theory, as their price predictions fall in line with it. Cybersecurity pioneer John McAfee, for example, has stated one bitcoin will trade at $1 million in 2020. Fundstrat Global Advisors co-founder Tom Lee, one of the first Wall Street analysts to cover the cryptocurrency, sees it hit $25,000 by the end of the year, and $91,000 by March 2020.