INSUBCONTINENT EXCLUSIVE:
By Eric LamIs the rise of Bitcoin analogous to the spread of an infectious disease
Analysts at Barclays Plc saw enough similarities to
develop a pricing model for the cryptocurrency that takes its cues from the world of epidemiology
Their diagnosis: Bitcoin has probably peaked.
The Barclays model divides the pool of potential Bitcoin investors into three groups:
susceptible, infected and immune
It assumes that as prices rise, “infections” spread by word-of-mouth (nobody likes missing out when their friends and colleagues are
Barclays analysts led by Joseph Abate in New York explained the rest in a note to clients on Tuesday: “As more of the population become
asset holders, the share of the population available to become new buyers — the potential ‘host’ population — falls, while the share
of the population that are potential sellers (‘recoveries’) increases
Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of
sellers to buyers, prices begin to fall
That induces speculative selling pressure as price declines are projected forward exponentially.”
A similar dynamic plays out with
infectious diseases when the socalled immunity threshold is reached, “the point at which a sufficient portion of the population becomes
immune such that there are no more secondary infections,” the analysts wrote.
The main variables determining when Bitcoin price gains turn
into price declines are the share of the population aware of the cryptocurrency and the share willing to invest (susceptible to infection),
Evidence from surveys in developed economies suggests that awareness is nearly universal and that the susceptible population is small, the
analysts wrote.
While the cryptocurrency bounced back from past price collapses in 2011 and 2013, the high level of awareness this time
around signals Bitcoin may never return to its peak of nearly $20,000 in December, according to the Barclays model
The virtual currency was trading at about $6,700 on Tuesday.
“We believe the speculative froth phase of cryptocurrency investment — and
perhaps peak prices — may have passed,” the analysts wrote.
