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Paul Jackson, head of asset allocation at Invesco, likens bitcoin's staggering rise in 2021 to financial mania. He notes that this bubble could deflate, causing the top cryptocurrency to drop to a low of $30,000 by October.
Invesco's investment strategist believes that the crypto bubble may well burst if the main cryptocurrency follows the historical patterns observed during the collapse in other markets. In addition, the "mania" that raised bitcoin to historical values of $69,000 in November is weakening.
In his forecast of "improbable but possible outcomes for 2022," Jackson emphasizes that over the current year, BTC quotes are likely to decline by 45% from their peak in the current year. And since the collapse of the bubble lasts much longer, it is likely that the main cryptocurrency could eventually drop to a valuation of less than $30,000 around October.
Jackson states that "The mass marketing of Bitcoin reminds us of the activity of stockbrokers in the run-up to the 1929 crash."
The reference to 1929 refers to the stock market crash that occurred on Wall Street at the start of Black Thursday on October 24th. The following week, this ill-fated day was followed by Black Tuesday, during which a sharp sell-off wiped billions of dollars from the market.
"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," he added.
Jackson noted that the scenario for the collapse of the bubble shows a drop of 45%, which occurs for 12 months after the maximum values of the asset. This he called "typical financial mania."
If this scenario works out, Jackson suggests that the quotes of the main cryptocurrency may fall to the minimum values in the area of $37,000–$34,000 by the end of October. He then speculates that a potential trajectory tracking historical bubble patterns could push BTC below the $30k level, given that typical booms typically stretch for another two years.
But Jackson was quick to note that the forecast could still be wrong, as was the case with last year's forecast for Bitcoin to fall below $10,000. According to him, there is a "good chance" that the cryptocurrency will mark last year's growth cycle.
Last week, we saw bitcoin fall below $40,000, but after grasping at straws, it quickly recovered to the $44,000 area. During this time, cryptocurrency quotes followed sentiment in the wider markets.
Analysts note that bitcoin is trading in line with equities, suggesting that a new decline in traditional assets could be reflected in the cryptocurrency or vice versa. Since the end of last year, one of the macroeconomic factors weighing on stocks has been the Fed's indication of a first-quarter rate hike, which is expected to take place in early March.
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