Are Bitcoin and Tesla in Bubble Territory?

Some investors think bitcoin and Tesla are the biggest market bubbles right now and their prices will be cut at least by half this year.

That’s according to a survey of 627 market professionals conducted by Deutsche Bank between January 13 and 15.

The majority of respondents, 56 percent, believe the flagship cryptocurrency will halve in the next 12 months. 

After jumping more than 300% last year and hitting almost $42,000 a few weeks ago, the original cryptocurrency created in 2009 was trading this Tuesday (Jan 19) afternoon at about $36,500. Year to date, it gained 24%.

Bitcoin enthusiasts call it a digital gold and consider it an inflation hedge, but skeptics see it as a speculative bubble.

In the same survey, 62 percent of investors said they expect Tesla to lose about 50 percent of its valuation. The electric car maker skyrocketed an incredible 800 percent in 2020, and another 30 percent so far this year. The stock is now trading close to $840 per share.

A much smaller number believe both assets will keep rising and are more likely to double in the next 12 months: 25 percent for Tesla and 18 percent for bitcoin.

It’s not clear, though, what pressure would pop the bubbles.

JPMorgan analysts warned there could be a bitcoin investor exodus unless the crypto regains the $40,000 level soon, according to a report published by Bloomberg on Monday. 

The pattern of demand for bitcoin futures and the $22.9 billion Grayscale Bitcoin Trust, the world’s biggest publicly traded bitcoin investment trust, will help determine the outlook. 

“The flow into the Grayscale Bitcoin Trust would likely need to sustain its $100 million per day pace over the coming days and weeks for such a breakout to occur,” JPMorgan strategists wrote in a note on Friday.

The Deutsche Bank survey showed that most investors believe “easy monetary situations”, which favor bubbles, will probably continue. According to 71 percent of respondents, the Federal Reserve (Fed) won’t tighten its polity before 2021.

Bitcoin recently dethroned tech stocks as the most crowded tradeable asset – meaning it’s the asset that gets the most capital inflow – according to Bank of America’s survey. A record $3.7 billion worth of bitcoin options is set to expire on January 29.

It’s the first time “long tech” lost the top position in the ranking since October 2019. Tech is in second place while betting against the U.S. dollar (“short USD”) is now the third most popular trade. 

Also this Tuesday, Ethereum, the world’s second-biggest cryptocurrency, was trading close to its all-time high.

It rose as much as 17 percent to $1,439, according to the site CoinDesk, just shy of the $1,448 record hit in early 2018, when major cryptocurrencies led by bitcoin reached new heights before a crash later that year. Ethereum has almost doubled year to date, rising 90 percent.

While bitcoin’s market capitalization today is over $680 billion, Ethereum’s total value is much smaller, around $160 billion.