Irrational exuberance in the bitcoin market failure to learn from history
This presentation is the property of its rightful owner.
Sponsored Links
1 / 18

Irrational Exuberance in the Bitcoin Market: Failure to Learn from History PowerPoint PPT Presentation


  • 88 Views
  • Uploaded on
  • Presentation posted in: General

Irrational Exuberance in the Bitcoin Market: Failure to Learn from History. Eyub Yegen. The Role of Information in Economics and Finance. Guidance to make effective and efficient decisions. Achieve the optimal level of benefit. Rational Behavior ( Marschak , 1950).

Download Presentation

Irrational Exuberance in the Bitcoin Market: Failure to Learn from History

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Irrational exuberance in the bitcoin market failure to learn from history

Irrational Exuberance in the Bitcoin Market: Failure to Learn from History

Eyub Yegen


The role of information in economics and finance

The Role of Informationin Economics and Finance

  • Guidance to make effective and efficient decisions.

  • Achieve the optimal level of benefit.

  • Rational Behavior (Marschak, 1950).

  • Data is used to develop empirical models.


The neoclassical school of thought

The Neoclassical School of Thought

No government regulation that interrupts the normal business cycle (Friedman, 1990).

Market efficiency hypothesis (Fama, 1998).

Investors always behave rationally.

Chicago school of economics.

Influence on Wall Street.


History tells a different story

History tells a different story…

  • Miscalculation of the true value of an innovation.

    • Irrational exuberance (Shiller, 2008).

  • The subprime mortgage crisis & the Dutch Tulip Bubble of 1637.

    • Innovation (MBSs, tulip contracts).

  • Speculation & over-optimistic expectation of prices.

  • Ignoring information that is provided by the market.


History tells a different story1

History tells a different story…

  • Long-term cost of having a crisis > short-term cost of government regulation (Stiglitz, 2009).

  • Destroyed over $10 trillion worth of economic value (Baker, 2008).

  • No regulation (primary cause of crisis).


Bitcoin

Bitcoin

Digital Currency (innovation).

Peer-to-per payment system.

No transaction costs (short-term benefit).

Limited supply (no inflation).

Not backed by a central bank.

No regulation in the U.S.

Complex Bitcoin Mining Algorithm.


Similar characteristics to previous bubbles

Similar characteristics to previous bubbles

  • No intrinsic value such as gold.

  • Not regulated by the government.

  • Difficult to calculate the true value.

  • Overestimation.

  • Speculative purpose.


Kindleberger minsky model of panics and crashes

Kindleberger-Minsky Model of Panics and Crashes

  • Identifies the stages of a bubble by using empirical data.

    • Three stages: manias, panics, and crashes.

  • Mania: A business cycle expansion. Cash chases assets.

  • Panic: Demand for liquidity and safe assets.

  • Crash: The Final Outcome. Price returns to its overall mean.


The tulip bubble of 1637

The Tulip Bubble of 1637

  • More than 10 times the annual income of a skilled craftsman. (Mania)

  • Some investors decided to sell. Prices began to dive. (Panic)

  • Dealers refused to honor contracts. Prices went down suddenly. (Crash)


The subprime mortgage crisis

The Subprime Mortgage Crisis

  • Some house prices appreciated by 80% from 2001 to 2006. (Mania)

  • In 2007, house prices went down by approximately 20%. (Panic)

  • In 2008, value of MBSs went down to almost zero. (Crash)

    • Fannie Mae and Freddie Mac lost $5 trillion.


The mt gox exchange market crash

The Mt. Gox Exchange Market Crash

  • In October 2013, 1 bitcoin = $1,200. (Mania)

  • In December 2013, China banned bitcoin transactions. (Panic)

  • February 25th, 2014, last day of trading before the crash.

    • 1 bitcoin =$173.20.


The mt gox exchange market crash1

The Mt. Gox Exchange Market Crash


All bitcoin exchange markets

All Bitcoin Exchange Markets

  • High volatility. (Speculation)

  • Overall Mean =$113.13Standard deviation=$228.19

  • Price of 1 bitcoin = $439.40(Mania)


All bitcoin exchange markets when will the bubble burst

All Bitcoin Exchange Markets: When will the bubble burst?


The argument of neoclassical school of thought has failed

The Argument of Neoclassical School of Thought has failed

  • U.S. government officials has raised issues.

  • Banning bitcoin transactions will create panic in the market.

  • Investors ignore information that is provided by the market.

  • Investors behave irrationally.

    • Still millions of dollars invested in the bitcoin market.

    • History repeats itself.


Conclusion failure to learn from history

Conclusion: Failure to Learn from History

Sir Winston Chruchill: “Those who fail to learn from history are doomed to repeat it.”

Investors in general behave irrationally from time to time.

Ignoring information provided by the market.

Bitcoin investors have failed to take a lesson.

Have to face the consequences of their erroneous and ignorant actions.


Irrational exuberance in the bitcoin market failure to learn from history

Sources

  • Data: www.quandl.com

  • Pictures:

    • www.nytimes.com

    • www.taxresearch.org.uk

    • www.geek.com

    • www.extremetech.com

    • www.matemedia.com

    • www.media.spokesman.com

    • www.ibreak4bacon.com

    • www.2.bp.blogspot.com

    • www.‪kilianbutler.wordpress.com

    • www.cagle.com

    • www.chrispacia.files.wordpress.com

    • www.econ.yale.edu/~shiller/

    • www.uchicago.edu

    • www.threattracksecurity.com


Irrational exuberance in the bitcoin market failure to learn from history

Any questions

Thank you!


  • Login