Barclays Bitcoin Model Depicting Infectious Disease Predicts Prices Have Peaked

Analysts are asking whether the rise and spread of the popularity and price of Bitcoin is equivalent to the spread of an infectious disease.

A model that takes cues from the world of epidemiology was used to explain the pricing model for the crypto currency was developed by the analysts at Barclays Plc and noted enough similarities between the two.

The conclusion from the analysis is that Bitcoin has probably peaked.

The susceptible, infected and immune are the three groups that the pool of potential Bitcoin investors have been categorized into by the Barclays model. “Infections” spread by word-of-mouth as and when there is a rise in the price of bitcoin, assumes the model. The rets of the analysis was explained in a note to its clients by Barclays analysts led by Joseph Abate in New York.

“As more of the population become asset holders, the share of the population available to become new buyers—the potential ‘host’ population—falls, while the share of the population that are potential sellers (‘recoveries’) increases. Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of sellers to buyers, prices begin to fall. That induces speculative selling pressure as price declines are projected forward exponentially.”

The analysts note that a so-called immunity threshold, “the point at which a sufficient portion of the population becomes immune such that there are no more secondary infections” is reached when there is a similar dynamism played out in relation to infectious diseases.

According to Barclays, the percentage of the population who are aware of the cryptocurrency and the percentage of people who are willing to invest or are susceptible to infection, are the primary variables that determine when Bitcoin price gains transform into price declines. The analysts further noted that while the awareness about bitcoin is almost universal, the susceptible share of the population is small according to evidence from surveys conducted in developed economies.

And according to the model developed by Barclays, the high level of awareness about the cryptocurrency this time around means that bitcoin potentially will never be able to claw back the peak that it had attained last December of almost $20000. This despite instances of the virtual currency bouncing back into high levels after falling drastically in 2011 and 2013.

The virtual currency was trading at about $6,700 on Tuesday.

“We believe the speculative froth phase of cryptocurrency investment — and perhaps peak prices — may have passed,” the analysts wrote.

(Adapted from Livemint.com)

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