Nobel Peace Prize winning economist Robert Shiller is no fan of Bitcoin, once saying that the cryptocurrency represents a bubble soon to burst.
Now Shiller has changed his tune. Bitcoin is still a bubble, he says, but it’s one that potentially might never burst.
“I’m interested in Bitcoin as a sort of bubble. It doesn’t mean that it will disappear, that it’ll burst forever,” said Shiller. “It may be with us for a while.”
Shiller is best known for his work predicting the 1987 market crash, the dot-com collapse and the 2007 housing crash.
His academic work forms the basis of the field of behavioral finance, the study of the role emotions in finance and markets.
As cryptocurrency investment, trading and speculation continues, Shiller acknowledged that he was rash in highlighting their shortcomings.
“I don’t mean to dismiss it. Some smart people went into these and other cryptocurrencies,” he said.
Shiller nevertheless thinks people mostly love the anti-government association and rebelliousness of buying into cryptocurrencies.
People got carried away with the decentralized nature of Bitcoin without considering how sustainable an investment it might be, he argued.
“There’s a big element of people [who] don’t trust the government anymore. They like the idea that this didn’t come from the government. It came from some real smart computer scientist. It’s a great story for today’s markets.”
Shiller explained that a psychological craze to hoard and invest in cryptocurrencies explained its popularity more than its investment value.
He still calls Bitcoin and cryptocurrencies in general a craze. “To me, it’s interesting as another example of faddish human behavior. It’s glamorous,” remarked Shiller.
The ideal of Bitcoin, its “story” as a decentralized digital currency, naturally appeals to investors and speculators.
“It’s the quality of the story that’s attracting all this interest, and it’s not necessarily sustainable. What’s driving the market?” asked Shiller.
“It’s not fundamentals. It’s not like this is a fundamentally important thing, this Bitcoin.”
Shiller once compared cryptocurrency mania to the Tulip bubble mania of the 17th century.
The value of Tulip bulbs from the Netherlands reached incredible highs before crashing. It remains one of the first examples of a global economic bubble.
Along with acknowledging the potential staying power of cryptocurrency investments, Shiller also commended the usefulness of blockchain technology.