On price dynamics alone, bitcoin BTCUSD, +1.68% looks like a sure bubble — a disaster waiting to happen. But bitcoin dynamics are basically not suited for any empirical analysis of any significant accuracy.
As noted by some commentators, bitcoin had numerous 80% to 90% and larger drawdowns in the past, given its immense volatility. It keeps coming back from these. Some claim this to be the evidence that bitcoin it not a bubble. Which is neither here nor there: bubbles are generated by exuberant expectations of investors, not by actual parameters of price processes. Causality does not flow from dynamics to bubbles, but the other way around. So to identify a bubble, one needs to identify exuberance.
In the case of bitcoin fans, there is clearly such.
No investor or serious analyst has been able to provide a fundamentals-based valuation model for bitcoin.
Full story at http://on.mktw.net/2k118Y5
Source: MarketWatch
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