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El-Erian Predicts Bitcoin Crash if Savvier Investors Sit Out Correction

While bitcoin’s price has recovered and held almost half of what it lost last Friday, one correspondent believes the bitcoin market has reached a crucial juncture.

After the markets spotted an epic druppel of 45 procent te bitcoin’s price on Dec 22 — down to $Ten,800, taking almost every other cryptocurrency down with it, the price has since rebounded somewhat. Meantime, the chief economic advisor of Allianz SE and former CEO of Pimco Mohamed El-Erian has asked whether or not this could be a make or pauze uur for the bitcoin market.

Te his katern on the Bloomberg View published on Dec. 26, El-Erian wrote:

“Either this acute price correction will act spil a catalyst for expanding what, until now, has bot fairly limited institutional involvement te this market — or it will become a stage te the deflation of a remarkable and historic asset bubble.”

Previously, El-Erian has called bitcoin more of a commodity than a currency because its price has remained too unstable for people to use it spil a medium of exchange. Without walking that back, he acknowledged major milestones for the bitcoin market this year: its dramatic price increase, the opening of futures markets and very limited government intervention (besides China’s).

Nevertheless, he argues that bitcoin has an underlying weakness: ter his words, those taking a long position are less sophisticated retail investors while those taking brief positions are all the more experienced ones. Meantime, institutional investors have overwhelmingly sat out the market.

That said, some of that could switch following a price druppel, which can be a sign that unattractive irrational exuberance may be leaking out of a market. He writes:

“After bitcoin experienced one of the largest roller-coaster weeks ter its youthfull history, the most significant question facing it is whether the latest price correction will prove to be what market participants refer to spil ‘healthy.'”

To prove itself, bitcoin investors will need to become more diverse, with experienced investors joining the retail investors ter long positions and institutional investors joining the market at all. The correction will also need to yield what El-Erian refers to spil “market-deepening products,” without further elaborating.

If it fails to grow ter thesis ways, he writes that retail investors will face “a price appreciation and collapse that would rival even the fattest investment bubbles ter history.”

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