Stocktake: Has the bitcoin bubble finally burst?
The cryptocurrency is volatile and its future value trajectory is anyone’s guess
Graffiti at the site of the new £355 million Royal Liverpool Hospital, which was being built by Carillion: Many are to blame for the Carillion debacle, but short sellers are not among them. Photograph: Pat Hurst/PA
There’s no shortage of commentators administering the last rites to bitcoin, which has more than halved recently following a crackdown by international regulators. However, it’s premature to say that the bitcoin bubble has definitively burst. The sheer volatility of bitcoin means it’s hard to distinguish between a correction and a crash. It suffered four declines ranging from 30 to 41 per cent in 2017, all of which were soon followed by all-time highs. Indeed, January’s falls appear trivial compared to past episodes.
Pension Partners’ Charlie Bilello notes that, in 2010, bitcoin endured two separate collapses of 94 and 72 per cent; another 94 per cent crash followed in 2011; 2013 witnessed a crash of 76 per cent and the cryptocurrency fell by 85 per cent between November 2013 and January 2015. On each occasion, it appeared a huge bubble had finally burst, only to eventually reinflate. The irony is that, despite enjoying massive gains, owning bitcoin has always been a stomach-churning experience. Historically, bitcoin has been in a drawdown of 25 per cent or more 71 per cent of the time, notes Bespoke Investment Group. Is bitcoin a bubble? Yes. Will it burst? Yes. Is it bursting, or is this a mere “flesh wound”, as Bespoke quipped last week? Search me. Given bitcoin’s crazed price history, anything is possible,
Stock market sentiment is getting excessive
Short sellers get it right on CarillionCarillionBalfour Beatty
By late 2015, Carillion was the most-shorted stock in the UK, even as the vast majority of analysts continued to recommend the stock to clients, and short interest remained high ever since.
The shorts were right to be suspicious of Carillion’s financing arrangements and sceptical about the idea Carillion could buck industry trends – a host of rivals issued profit warnings well before Carillion issued the first of three profit warnings in July 2017. The shorts are always the first to smell danger, and research confirms investors should generally be wary about highly shorted companies. Instead of being lauded for their prescience, however, the shorts are invariably pilloried.
“Ruthless hedge funds target Carillion rival”, the Daily Mail headlined last week. A return to the “casino economy” which “brings devastation to people’s lives”, said Labour MP Valerie Vaz, complaining about hedge funds “betting on the collapse of the shares of a company that provides vital public services”. Such indignation is misplaced. Many people are to blame for the Carillion debacle, but short sellers are not among them.
Olympic success distracts investorsIs there an Olympic Gold Medal Rush in the Stock Market?South Korea
The Olympics effect appears to be somewhat milder, with actual stock returns neither stronger nor weaker than usual. The Games “affect the attention of investors but not their mood”, the study concludes.