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Robert Shiller: 'Faddish' Bitcoin More Psychological Than Economic

(Jan Lievens/Dreamstime)

By    |   Friday, 13 April 2018 12:02 PM

Nobel Prize-winning economist Robert Shiller warns savvy investors to resist being swayed by headlines touting digital currency bitcoin as the next “sure thing” investment winner.

Shiller interprets the controversial cryptocurrency as more of a psychological experiment than a serious investment. 

"I'm interested in bitcoin as a sort of bubble. It doesn't mean that it will disappear, that it'll burst forever. It may be with us for a while," the professor of economics at Yale University recently told CNBC.

"To me, it's interesting as another example of faddish human behavior. It's glamorous," said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.

Shiller spoke as the bitcoin price jumped suddenly for the second time in as many days, extending its weekly gain to more than 20 percent.

The world’s most traded cryptocurrency climbed nearly $400 in the span of an hour on Friday to $8,175, hitting its high of the day around 9 a.m. in London, Bloomberg reported. While the trigger for the advance was unclear, it followed a similarly rapid gain of more than $1,000 on Thursday. Other large cryptocurrencies such as Ether, Ripple, Bitcoin Cash and Litecoin are up at least 6 percent Friday.

While Shiller doesn’t own bitcoin, he admits many people have likely made a lot of money off their investments.

"I don't mean to dismiss it. Some smart people went into these and other cryptocurrencies," said Shiller, who won the Nobel Prize for economics in 2013. "But it's a story that I think goes way beyond the merit of the idea. ... It is more psychological than something that could be explained by the computer science department," he said.

Shiller explains that the nation’s currently super-charged political environment may have also fueled bitcoin’s rise.

"Part of it is political. Economists tend to neglect the political side," he said. "There's a big element of people [who] don't trust the government anymore. They like the idea that this didn't come from the government. It came from some real smart computer scientist. They like that. It's a great story for today's markets."

Meanwhile, bitcoin is inching back up after it slumped 52 percent in the first quarter, its worst start of a year ever, Bloomberg explained.

The approaching deadline to report taxes in the U.S., which means investors are done selling crypto to pay off outstanding balances, and a squeeze against a record short position on bitcoin are adding to the rally, said John Spallanzani, a portfolio manager at Miller Value Partners.

Regulatory concerns as authorities from China to the U.S. tightened their grasp in the industry have weighed on prices, while social media giants like Facebook Inc. and Twitter Inc. banned advertisements on digital coin sales. There was also speculation that the trustee of failed exchange Mt. Gox was selling its bitcoin to pay back creditors.

“News flow had turned less negative on balance, most of the tax selling had finished and there was a sizable short position that had been accumulated so a few large players took note and once we broke above technical resistance it was off to the races,” Spallanzani said.

To be sure, after rocketing to almost $20,000 in December, bitcoin’s price has fallen this year on the back of worries about a regulatory clampdown and concerns it is a speculative bubble that is now deflating, Reuters said.

That has prompted some traders to bet heavily against - to short - bitcoin and other cryptocurrencies.

Two people active in the cryptocurrency market said the biggest moves in trading of bitcoin had occurred on the Bitfinex exchange before spreading to other platforms.

“People overshorting on Bitfinex so bit of a squeeze there,” said Charles Hayter, founder of cryptocurrency analysis website CryptoCompare.

Sentiment towards cryptocurrencies has improved in recent days and prices were consolidating, which can lead the price to suddenly “explode” higher, said Naeem Aslam, an analyst at ThinkMarkets who owns and trades virtual currencies.

Other analysts said there was no obvious news behind the move, although one cited recent reports prominent billionaire trader George Soros had decided to start trading cryptocurrencies.

(Newsmax wire services contributed to this report).

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Nobel Prize-winning economist Robert Shiller warns savvy investors to resist being swayed by headlines touting digital currency bitcoin as the next “sure thing” investment winner.
shiller, bitcoin, faddish, psychological, economic
Friday, 13 April 2018 12:02 PM
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