Here's Why Bitcoin Isn't Like Any Financial Bubbles Of The Past

Bitcoin has gone through numerous cycles of incredible price increases and disastrous subsequent dumps in the last 10 years. According to Man Group, a large publicly traded hedge fund company, Bitcoin is like Prometheus from Greek mythology, because every time it got hurt, it kept coming back.

“Every time a Bitcoin bubble bursts, another grows back to replace it,” Man Group said in an analyst letter last Jan. 12. This behavior, the group explains, makes it different from past bubbles, Bloomberg reported.

Man Group has listed 20 bubbles, from the Dutch Tulips of 1634 and the Mississippi Company of 1718 to the tech bubble of 1995 to 2002 and the U.S. Financials from 2002 to 2009. The Tulip Mania gave a return of 39.9x from its starting price while the Mississippi Company gave a return of 36x.

Like most bubbles, they all declined from the peak and many have not recovered. For example, the Mississippi Company’s decline led to its collapse in 1721. Almost all the tech stocks of the 90s were wiped off, though those that survived are some of the largest companies right now, including Amazon.

Bitcoin, the Man Group said, is different. In 2017, Bitcoin went to as high as just below $20,000 in a parabolic rally that began that same year. It then went on to a three-year crash, ultimately going just below $4,000 in March 2020.

However, with a technical event known as the Bitcoin halving -- where the supply issuance of Bitcoin is reduced to 900 per day, the cryptocurrency underwent another parabolic rally from $4,000 last March to $42,000 this January 2021.

Multiple analysts have suggested differences in these two “bubbles.” In 2017, the mania was fueled by retail investors wanting to take quick profit without understanding Bitcoin or cryptocurrencies. In 2020, the active participants are institutional investors, who, analysts claim, have longer multi-year time frames and not just holding for quick profits.

As such, the Man Group said it would be wise not to call 2017, 2020, and the previous Bitcoin price peaks as “bubbles” but rather, they must be viewed simply as volatility that is observed whenever an asset enters price discovery mode. This volatility “will dwindle to give Bitcoin more stability, and ultimately, legitimacy,” the Man Group concluded.