INTHEBLACK September 2021 - Magazine - Page 23
ARE WE IN
THE MIDDLE
OF A BUBBLE?
SEVERAL ASSET CLASSES, INCLUDING CRYPTOCURRENCY
AND EVEN REAL ESTATE, APPEAR TO BE RICHLY PRICED
IN 2021, BUT ARE WE EXPERIENCING A BUBBLE?
National University, describes Bitcoin as “the
mother of all bubbles”.
“Bubbles don’t just emerge out of nowhere,” he
says. “There is a genuine basis for a bubble, and it
usually involves an innovation – some kind of new
product or new technology that sparks people’s
imagination. A story is created around it, and
people project forward to it being life changing
or having a major impact. Today, that story is told
and retold via social media.”
Dr Brent Coker, who teaches cryptocurrency
marketing at the Melbourne Business School,
says much of the cryptocurrency community
exists on Twitter.
“Cryptocurrency traders will typically have
things like TweetDeck set up to help them
organise their topics,” he says. “A lot of price
movements in cryptocurrency are based on word
of mouth, much more so than traditional stocks.
“There’s an old saying that you never trade
the news when it comes to traditional stocks,
but my sense is, with cryptocurrency it’s exactly
the opposite.
“Everyone’s just looking for news because it
is so volatile and so random. Also, the folks that
are trading crypto are not really old-school Forex
traders or stock exchange traders. They are mostly
young, and the first thing they may have traded is
crypto, so it’s all about the news.”
Datuk Muhamad Umar Swift CPA,
CEO of the Malaysian stock
exchange, says that, while
there is higher participation
among retail investors, the
current market lacks the
“frenzied inflows” of
previous bubbles.
“Since last year, we’ve
observed a shift in demography
towards higher participation by
retail investors. While low
interest rates have been a
factor in this shift, other factors
have played a part and set the
stage we are in today.
“One, which started more
than 10 years ago, is the
liberalisation of the brokerage
fees, which generally made
trading cheaper and more
attractive.”
Swift adds that continuous
growth, propelled by
improvements in the online
trading experience offered
by broking houses, is also
contributing to the growth
in retail investors.
“The pandemic-fuelled
market volatility brought new
investors into the world of
stocks,” he says. “Working from
home, loan moratoria and
higher personal savings levels,
as well as social media platforms,
have helped accelerate the
boom in retail trading.”
Chris Brycki, founder and CEO
of digital investment advisory
Stockpot, is not convinced of
an investment bubble in the
Australian market.
“Asset prices are relatively
high compared to history, but
I haven’t gotten into an Uber
recently where the driver has
given me a stock tip,” he says.
“I think that relatively high
asset prices are more of a
function of bond rates. The
reaction of governments and
central banks to COVID-19 was
to bring interest rates to zero
and then print lots of money,
and that’s really what’s inflated
asset prices, but they are all
relative to each other.”
intheblack.com September 2021 23