Bitcoin bubble: What it tells us about financial markets

26 Mar 2018

What Bitcoin Reveals About Financial Markets

Professor John Quiggin wrote an opinion piece for the New York Times on 8 February 2018 about what bitcoin reveals about our financial markets. The full article can be viewed on the New York Times website.

Professor Quiggin

The spectacular increase and recent plunge in the price of Bitcoin and other cryptocurrencies have raised concerns that the bursting of the Bitcoin bubble will cause financial markets to crash. They probably won’t, but the Bitcoin bubble should finally destroy our faith in the efficiency of markets.

Since the 1970s, economic policy has been based on the idea that financial market prices reflect all the information relevant to the value of any asset. If this is true, market prices are the best estimates of the value of any investment and financial markets should be relied on to allocate capital investment.

This idea, referred to in the jargon of economics as the efficient market hypothesis (technically, the strong efficient market hypothesis), implicitly underlay the deregulation of financial markets that started in the 1970s. Although rarely stated now with as much confidence as it was during its heyday in the 1990s, the efficient market hypothesis remains a background assumption of much central-bank and economic policy.

View the full article on the New York Times website