Bitcoin, FOMO and the Misallocation of Capital

6-Month Chart of Bitcoin

It is hard to open a paper, turn on the television, or even get into a taxi (Uber) without hearing about Bitcoin. As the holiday season starts up, it is inevitable that we will all be drawn into conversations about Bitcoin and told of the staggering profits made and the potential for more. We are also likely to hear compelling arguments about how to make future fortunes by going both long and short Bitcoin. Like all speculative investments (commodities, currencies, futures) the key will be timing. Currently, the main difference between Bitcoin and other highly speculative securities is the speed and magnitude of the price moves.

For those keeping track, this is how long it has taken the Bitcoin to cross the key psychological levels:

$0000 – $1000: 1789 days
$1000- $2000: 1271 days
$2000- $3000: 23 days
$3000- $4000: 62 days
$4000- $5000: 61 days
$5000- $6000: 8 days
$6000- $7000: 13 days
$7000- $8000: 14 days
$8000- $9000: 9 days
$9000-$10000: 2 days
$10000-$11000: 1 day
$11000-$12000: 6 days
$12,000-$13,000: 17 hours
$13,000-$14,000: 4 hours
$14,000-$15,000: 10 hours
$15,000-$16,000: 5 hours
$16,000-$17,000: 30 minutes

As you can see above, the speed of the price appreciation has been staggering. While other bubbles like the dotcom and U.S. housing market took years to develop and explode, Bitcoin’s ascent has been parabolic and mostly concentrated in the last 60 days. However, this may not be such a surprise, as we live in an era of instant gratification and technological speed. Perhaps we should expect future bubbles to appear (and disappear) much faster than in the past..

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