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Bridging The Gap
Bitcoin, Cryptos and Financial Asset Bubbles.
  Monday 08 January, 2018
Bitcoin, Cryptos and Financial Asset Bubbles.

At less than $1000 per coin in January, Bitcoin prices surged past $11,000 this past November. It then corrected back to $9,000, only to surge again by early December to more than $15,000. Given the forces behind Bitcoin, that scenario is likely to continue into 2018 before the bubble bursts. This article will in part address those forces behind Bitcoin’s bubble, and why the bubble will continue to grow near term.

What’s a financial asset bubble? Few agree. But few would argue that Bitcoins and other crypto currencies are today clearly in a global financial asset bubble. Bitcoin and other crypto currencies are the speculative investing canary in the global financial asset coalmine.

One can debate what constitutes a financial bubble – i.e. how much prices must rise short term or how much above long term average rates of increase – but there’s no doubt that Bitcoin price appreciation in 2017 is a bubble by any definition. At less than $1000 per coin in January, Bitcoin prices surged past $11,000 this past November. It then corrected back to $9,000, only to surge again by early December to more than $15,000. Given the forces behind Bitcoin, that scenario is likely to continue into 2018 before the bubble bursts. As of mid-December, Bitcoin is trading at $17,009 and predicted to surge higher. Some analysts are even predicting the price for Bitcoin will escalate to $142,000, now that trading has gone mainstream on the CBOE and other commodity futures exchanges. The question of the moment, however, is what might be the contagion effects on other markets?

This article will in part address those forces behind Bitcoin’s bubble, and why the bubble will continue to grow near term. But Bitcoin and other crypto currencies are but one case example of financial asset price acceleration underway in global markets that also are either in, or approaching, bubble territory – a condition typical of a late credit cycle reaching its limits.

Other asset bubble candidates include equities markets, especially in the USA, Japan and some emerging market economies (EMEs); corporate junk bond markets globally; and high risk bank loans – particularly in Europe, Japan and Asia – emerging on a base of trillions of dollars of pre-existing non-performing bank loans.

In the following, the determinants and driving forces behind the growing financial asset bubbles are discussed, with special focus of Bitcoin and crypto currencies which have a potential of “contagion” to other financial markets more than most commentators today like to admit.

Less debatable are potential contagion effects from global equities, now approaching bubble territory in some regions like the USA and Japan. Or corporate junk bond markets worldwide. Or high risk leveraged loans, the return of CLOs, and the late-cycle trend increasingly apparent among banks toward covenant-lite lending terms, as the search for yield becomes ever more desperate everywhere.




source:http://www.europeanfinancialreview.com/?p=20652

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