Bitcoin may see a 50 % decline this year as the crypto bubble begins to deflate: Report

With the Bitcoin bubble beginning to deflate, the world’s largest cryptocurrency is predicted to see over 50 per cent price decline this year from its peak of around $68,000 in November last year. According to Invesco, in a list of 10 improbable but possible outcomes for 2022, the investment management firm’s global head of asset allocation Paul Jackson said that the mass marketing of Bitcoin reminds everyone of the activity of stockbrokers in the run-up to the 1929 crash – the American stock market crash. 

“We know how that ended and Bitcoin has already fallen to around $42,000 (as of 7 January 2022), following closely the downward path of our mania template. That template suggests a loss of 45 per cent is experienced in the 12 months after the peak of a typical financial mania,” said Jackson. “If that pattern is followed (assuming the price has already peaked), the price of Bitcoin would fall to $34,000-$37,000 by the end of October, depending upon whether the daily or monthly data is used to define the peak,” he added. 

Data from CoinMarketCap.com reveal that Bitcoin had started to scale up from around $9,000 back in July 2020 to over $63,000 in April last year before plummeting to below $30,000 in July. It peaked at around $68,000 in November, following which the price has been on a downward trajectory. Bitcoin hit $41,500 in the first week of 2022 and is currently trading at $41,661.

Jackson noted that the rise and fall in Bitcoin value was akin to a ‘financial mania’ wherein prices go up for three years before the peak is achieved followed by steep losses as prices decline for the next three years. “The (mania) template also suggests that bubbles typically deflate for a further two years.  Hence, we think it is not too much of a stretch to imagine Bitcoin falling below $30,000 this year (with the health warning that we have got this wrong before and that it seems to be going through a series of bubbles),” he added.

The 12-month period before and after the peak in price is referred to as the ‘Maniac phase’. 

However, investment bank Goldman Sachs had earlier this month predicted a rise in Bitcoin price. According to a report by Goldman Sachs, crypto could earn a little over $100,000 within the next five years by taking market share from gold as a by-product of broader adoption of digital assets.