Bitcoin's bubble could burst and lose more than half of its value in 2022 as investor "mania" wears off, one investment firm has warned.
In his list of ten "improbable but possible outcomes for 2022", Invesco's Global Head of Asset Allocation Paul Jackson says he can see Bitcoin falling below $USD30,000, marking a drop of more than 50 per cent since the crypto's recent high in November 2021.
Alluding to the great stock market crash of 1929 – infamously known as "Black Tuesday" – Mr Jackson said the boom in Bitcoin's value bears the hallmarks of a phenomenon known as "financial mania".
Also called an "economic bubble", manic investing typically sees the price of an asset soar to far greater heights than its intrinsic value due to mass marketing.
"The mass marketing of Bitcoin reminds us of the activity of stockbrokers in the run-up to the 1929 crash," Mr Jackson writes.
"We know how that ended and Bitcoin has already fallen to around $USD 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."
Mr Jackson said if the template is followed, the price of Bitcoin would plummet to between $USD 37,000 and $USD 34,000 by the end of October 2022.
"The template also suggests that bubbles typically deflate for a further two years," speculates Jackson.
"Hence, we think it is not too much of a stretch to imagine Bitcoin falling below $USD 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)."
The cryptocurrency has long been called a "bubble" by institutional investors, but has defied predictions multiple times.
In late December 2017 Bitcoin rose to what was then considered astonishing heights by hitting in excess of $USD 19,000 per coin.
Just two months later in February 2018 it had lost more than half of its value – prompting many to claim that the bubble had burst.
But fast forward to late 2020, where the global economy had suffered deep blows due to the COVID-19 pandemic, and Bitcoin was climbing again and eclipsing its 2017 high.
Investors had traditionally viewed the cryptocurrency as the tool of cybercriminals and shady transactions on the dark web.
But by late 2020 it was gaining legitimacy: the UK and the US central banks had voiced interest in developing their own digital currency using blockchain technology derived from Bitcoin.
Automaker Tesla started accepting Bitcoin as payment for cars, El Salvador became the world's first country to adopt Bitcoin as legal tender and in late 2021 and Australia's own Commonwealth Bank announced it would allow customers to trade cryptocurrencies via their online banking app.
Currently one Bitcoin is worth $AUD 58,463, having retreated heavily from an early November 2021 high of more than $AUD 91,000.
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