Bitcoin and cryptocurrencies aren’t the only bubble which investors should be worried about. It’s bitcoin shares prices the bubble getting the most attention this week, but people should also be careful of risks in the property and stocks markets, according to a report by Danish investment bank Saxo Bank.
The length and extent of some of these bull markets may conceal just how far from fundamentals these assets have drifted,” the bank’s chief economist Steven Jakobsen said. The crypto bubble may be the most visible due to the high volatility and performance seen in 2017. But how does one spot a bubble? A bubble is “the situation created when prices go super-exponential” and causes a “departure from fundamentals”, he said. Another characteristic is that it’s driven by “pure speculation” as “traders are buying and selling without even considering the fundamental value of the asset”. However, he warned this is followed by an eventual “sudden sharp decline when the bubble bursts”. It was a sea of red, with the big players bitcoin, Ethereum and Ripple dropping by more than 20, 25 and 40 per cent respectively.
US19,343 in mid-December, according to Coindesk. Bitcoin is a formula almost guaranteed to end in tears, but still speculators pile in to the bubble, writes Ian Verrender. Jacob Pouncey, Saxo Bank’s crypto analyst, said 2018 “will be a make-or-break year for the burgeoning crypto asset market”. Furthermore, there are parallels that can be drawn between cryptocurrencies and the dot-com boom in the late 1990s. At the peak of the dot-com era, over 100 companies had changed their name,” Mr Pouncey said. In a similar vein, companies like beverage maker Long Island Iced Tea Corp have capitalised on the current “crypto bubble” by renaming itself “Long Blockchain Corp”, which saw its share price skyrocket in December. Former photograph giant Kodak did something last week, by launching KODAKCoin, which drove up demand for its shares.
The consequences will be dire for the cryptocurrency market in the event of a crash. If the market crashes, regulators will lash out at those involved and hinder the growth of the technology with burdensome red tape that could set the industry back years,” Mr Pouncey said. But its impact would not have much of an impact on the wider economy, according to Capital Economics. From a macroeconomic perspective, property bubbles tend to be the most dangerous because they affect such wide portions of the population,” said the bank’s head of macro analysis, Christopher Dembik. It will lead to a huge loss of wealth for homeowners who in many cases will not be able to afford their mortgage payments. He identified the riskiest property markets to be Australia, London, Hong Kong, Sweden, and Norway — where housing prices kept rising despite the global financial crisis.
Australia’s household debt to income ratio is around 200 per cent, and tipped to grow further. However, investors may feel comforted knowing there’s always someone in a less fortunate situation. The authors of the report stated Australia’s housing bubble has been going on for 14 years, with properties appreciating by 108 per cent — and average home prices 6. 6 times higher than the annual median household income. In contrast, London property has shot up 380 per cent in 21 years, with average home prices 12 times higher than typical household incomes.