Measuring The Mania


The now-super-rich WInklevoss twins have updated their crazy prediction with, of course, something even crazier, stating that even with the incredible rise we’ve seen so far, it’s going to go up another twenty-fold. In other words, about $300,000 per Bitcoin (let’s all remember this launched at a value of 1 penny in 2009, so that’s a rise of 30-million-fold in value).

The ascent of cryptos is, of course, unprecedented. People keep talking about tulips. Look, I wrote a book about financial manias, and tulips went up about ten-fold during its mania. Bitcoin has already gone up hundreds-of-thousands-of-fold, so it’s not even close. Instead, let’s compare it to the one mania we experienced in our lifetimes, which was the hottest stocks of the Internet bubble.

To give us a baseline, let’s try to think of a “base” for Bitcoin. It isn’t a penny. Instead, I like to think of the price where Bitcoin stabilized after its first big crash (see chart above), which is around $160 to $200 (see two arrows pointing out the double bottom). Let’s split the difference and call it $180. So that’ll be our starting point.

There were hundreds of new stocks during the initial Internet era, but the two I want to use for this little thought experiment are Amazon and Yahoo, both of which had breathtaking ascents in price. When people remember the Internet bubble, they might think stocks had insane P/E ratios of 100, 200, or 300. Not so. Yahoo, for instance, had a P/E of nearly 2,200 before the bubble burst. (Of course, Bitcoin has a P/E of infinity, but let’s not get distracted with the fact it actually isn’t a business that could ever produce a profit someday).

So, starting off with Amazon………….


The red arrow from the late 1990s show its incredible explosion from about $1.31 to $113, a rise of about 90-fold. Using our base of $180, that gives us a target “bubble peak” of $16,200. Well, although Bitcoin does seem to be stalling and struggling at around the $17,000 level, it seems to me we’ve already smashed by this lofty target. In other words, Bitcoin has outperformed Amazon’s 1990s bubble phase.

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Disclaimer: This is not meant to be a recommendation to buy or to sell securities nor an offer to buy or sell securities. Before selling or buying any stock or other investment you should consult ...

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