Bitcoin’s Rise and Fall Reminds Morgan Stanley of Nasdaq Crash

Bitcoin’s recent moves are similar to the dot-com bubble, but the timeline is unfolding much faster, according to a research published by Morgan Stanley on Monday.

In a research report, Sheena Shah, a Morgan Stanley market strategist, said that bitcoin’s recent moves almost mirror that of the Nasdaq Composite Index in the lead-up to and aftermath of 2000, but at 15 times the speed. According to the report, the Nasdaq climbed 278 percent in 519 days in the rally leading up to its high in March 2000, while bitcoin soared 248 percent in 35 days in the last leg of the rally to its $19,511 high in December.

Shah said on average, bitcoin prices have lost 45 percent to 50 percent of their value in each bearish wave, which is similar to Nasdaq’s behavior 18 years ago. The Nasdaq’s bear market from 2000 had five price declines, averaging a surprisingly similar amount of 44 percent.

Shah also compared trading volume, where there were similarities but also some divergences between bitcoin and the Nasdaq. Since December 2017, bitcoin trade volumes have risen by almost 300 percent

“The follow-up rally for both bitcoin and the Nasdaq always saw falling trading volumes,” Shah said. “Rising trade volumes are thus not an indication of more investor activity but instead a rush to get out.”

During bitcoin’s last bear market, it was noticed that crypto token Tether was used for significant bitcoin trading. Tether is a digital token that creators say is backed with one US dollar for every unit, meaning its market price is $1. Tether has come under both industry and regulatory scrutiny as some are skeptical it actually has $2.2 billion on reserve.

“The coin USDT is not a major funding unit but its increasing use is an interesting development,” Shah wrote. “Over the coming years, we think that market focus could turn increasingly towards cross trades between cryptocurrencies/tokens, which would transact via distributed ledgers only and not via the banking system.”

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