Bitcoin has long been compared to the dot-com bubble. Morgan Stanley says its recent moves are similar to the tech boom and bust, but on steroids.
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, Morgan Stanley said. The Nasdaq climbed 278 per cent in 519 days in the rally leading up to its high in March 2000, while Bitcoin soared 248 per cent in 35 days in the last leg of the rally to its US$19,511 high in December, according to the report.
There have been three waves of weakness since Bitcoin peaked in December, with prices falling between 45 per cent and 50 per cent each time, before rebounding. The Nasdaq's bear market from 2000 had five price declines, averaging a similar 44 per cent.
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The bear market also looks similar on the way up. There have been two Bitcoin bear market rallies of 43 per cent on average, while the Nasdaq bear market rallies averaged 40 per cent.
Bear markets are nothing new for the first decentralized digital currency. Since the coin's creation in 2009 there have been four bear markets with price declines ranging from 28 per cent to 92 per cent. From the December peak to the most recent low on February, Bitcoin's price fell by 70 per cent, "nothing out of the ordinary," Morgan Stanley said.
The previous Bitcoin bear markets have last five months on average, after rallying for two to three months, but "the small number of historical examples and variability of each of the bear markets make it difficult to assume that the current bear market may take the same time period," Morgan Stanley strategist Sheena Shah wrote.
All the past Bitcoin bear markets have seen rising trading volumes at the trough relative to the peak, while rallies prior to most bear markets have seen falling trading volumes, according to the report. Since December 2017, Bitcoin trade volumes have risen by almost 300 per cent, the report said.
"Rising trade volumes are thus not an indication of more investor activity but instead a rush to get out," Shah wrote.