Friday, February 3, 2023

Barclays Bewilders Investors with Baffling ‘Bitcoin Infection’ Analysis

Barclays Bewilders Investors with Baffling ‘Bitcoin Infection’ Analysis

Barclays Plc has injected pure idiocy into the bitcoin price speculation game with analogies to infectious diseases. Comparing the adoption of bitcoin to the transmission of disease, analysts led by Joseph Abate in New York have concluded that “the speculative froth phase of cryptocurrency investment — and perhaps peak prices — may have passed.”

Also see: What Gives a Dollar Its Value? Why Bitcoin Must Replace Fiat

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2017 End of Year All Time Highs Were an Anomaly… Just Like They Were 2016, 2015, and 2014

Serious students of bitcoin price movements have observed falls in the bitcoin price about a month before Chinese New Year every year for the past four years. A rational explanation for this is Chinese investors cashing out of crypto and back into fiat to spend during the holiday season.

This year creates an additional early-year burden on the cryptocurrency market, with April marking American tax filing season and crypto compliance debuting in 2018. Plausibly, there may be downward price pressure as American taxpayers exit crypto and cash out into fiat to resolve tax debts.

To Hell With History… It’s All About Epidemiology

Not concerning itself with the rigors of historical analysis or scientific logic, Barclays analysts released a client note on Tuesday suggesting bitcoin, like the flu, is likely to wane as more and more people develop immunity. They appear to have overlooked influenza’s propensity to adhere to the rules of seasonality.

According to the World Health Organisation, “In temperate climates, seasonal epidemics occur mainly during winter.” In the tropics, it tends to peak during monsoon seasons. The prevalence of influenza is affected by season. The flu, in other words, wanes as seasons change. Bitcoin has demonstrated similar susceptibility to seasonal influences: Chinese New Year, now the American tax year, as well as economic shock events like speculation of a Korean ban on crypto, which plagued the beginning of 2018.

Such economic shocks would be familiar study territory for a seasoned banker. Why Barclays chose to drift into epidemiology is possibly better explained by the bank’s attempt to grab attention and gain relevance in the newly emerging crypto market. Information on infectious diseases is probably more reliable when sourced from the WHO, rather than a banker.

The Barclays analysis is summarized here:

“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.”

Notwithstanding the obvious problem of influenza infections falling as winter makes way for spring, Abate appears to be unaware of certain demographic facts when he speaks of “the share of the population available to become new buyers”. Populations are not stagnant. The highly respected International Institute for Applied Systems Analysis (IIASA) estimates there are around seven billion people on earth today, and that is projected to grow to around nine billion by the end of the century. There is not, in other words, a fixed population braced for bitcoin infection (all-year-round, too), as Abate might have us believe.

The Global Blockchain Business Council recently conducted a survey in the U.S. which found only around five percent of respondents owned bitcoin. That percentage would be exceeded only in Japan, although some reports suggest only two to three percent of Japanese citizens hold the currency. One steemit writer made a compelling argument that less than 0.5% of the global population owned bitcoin.

Furthermore, the majority of bitcoin owners are between 18 and 34 years of age. As more people enter that age bracket from beneath, and as adoption increases among those over 34 percent, interest in bitcoin will surely rise. And with it – given a fixed supply – price.

Perhaps Barclays Is Simply Being Cheeky

The analysis Barclays compiled is hardly a highly sophisticated model of potential bitcoin investors. It identifies a mere three types of people: those that are susceptible to bitcoin, those infected, and those that are immune.

Price surges in bitcoin cause infections, driven by FOMO, among the susceptible in the population. As the numbers of people infected with bitcoin fever rises, the model shifts to a new paradigm of two groups: potential hosts (those who have yet to buy bitcoin) and recoveries (those looking to sell).

Immunity to bitcoin, defined as the currently infected not willing to buy more or those not willing to buy at all, speaks to “the point at which a sufficient portion of the population becomes immune such that there are no more secondary infections.” This sufficient proportion, using Barclays’ logic, appears to be incredibly small at well under one percent of the global population, given the number of current bitcoin mcafee

The Silliness Will Not Abate

Like a Winklevoss twin or McAfee price prediction, the analysis is meaningless. Price predictions or doomsday determinations of burst bubbles are designed to attract hype and attention.

Whether Barclays was making an attempt at self-ridicule or cheek, the comparison of bitcoin adoption to infectious disease was almost as inappropriate as McAfee’s choice of cuisine were his 2018 price predictions to prove wrong. The difference is… he meant to be inappropriate. And certainly cheeky.

Have your say. Is Barclays’ analysis as ridiculous as it sounds?

Images via Pxhere, Wikimedia 

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