Are we in a bubble ? With the world – says Cassandra – about to fall apart, public debts out of control, but stocks (US and EU) near the maximum and Bitcoin above $100,000, there are many pro-bubble arguments . However, once again, things are more complicated than they might seem.
Bubble is a term of great fortune in economic analysis, especially when it has to be peddled in newspapers with that pinch of sensationalism that keeps readers glued to the screens. And especially when sooner or later, like the broken clock that tells the exact time at least twice a day, we inevitably get caught.
Cassandra has spoken: we are in a bubble
Help, we are in a bubble. It is time to retreat and wait for better times. Or maybe to come back when everything will have inevitably collapsed and there will be the right prices to make great deals . There are several problems with this attitude, however:
Saying that a bubble is about to burst costs nothing;
It is said very often, especially about Bitcoin. Here the director of Criptovaluta.it® Alessio Ippolito explains how it works ;
Predicting bubbles is like predicting earthquakes. They will happen eventually, but not having a precise time horizon does NOT help protect against damage;
If you are standing still with your capital, you are still losing money ;
We talked about what you can do while you wait, if you don't want to be directionally exposed to the crypto world or any other asset, in our latest YouTube live which you can find here.
But now let's move on to possibly deeper considerations. That is, those that start from the data and that say yes or no to the existence of a bubble.
Very High P/E Ratio Quotes: Yes, We Are in a Bubble
Many are looking at the incredible price of Circle , for example . It wanted to obtain a capitalization of around 6 billion dollars . Two weeks after the start of trading, the stock is trading around $240 . This means a market capitalization of around 58 billion dollars.
Returning to the P/E Ratio : it is the ratio between the share price and the earnings divided by the number of shares. Given that for 2024 , in a relatively good year , Circle brought home about $160 million in profits, it is reasonable to believe that the stock's run is considered exaggerated.
In reality, stocks have been almost at a standstill for a while: no, we are not in a bubble
Are stocks skyrocketing? Yes, but largely thanks to the stellar prices of the so-called magnificent seven , which have been soaring for some time now . If we were to remove these stocks from the main indexes, we would have, if you like, much more normal trends.
Any consideration that should be made on the state of the stock market should also start from this graph that we attach.
Bitcoin is at its highest: but it's not a bubble because…
Because at least compared to the other cycles, several aspects are missing:
Degen mechanisms that push the arrival of capital in the crypto world.
In the previous cycle there was great enthusiasm captured by the Grayscale trust , which was trading well above par and had become something of a cash cow.
There were also unsustainable DeFi mechanisms whose gains were partly passed on to the top of the market.
It's Bitcoin, not the rest
With all due respect to the altcoin sector , Bitcoin is playing in a league of its own. And it is being driven by investors who are generally level-headed, starting with those who are going long on ETFs. Can they be responsible for a bubble ? Certainly, but we are far from the mechanisms of the previous cycle.
The dominance chart we attach should be more than emblematic of the rush towards assets – Bitcoin – that BlackRock like many others consider a safe haven and not a yardstick for speculation.
No bubble: liquidity still under control
We are technically in restrictive territory . The Fed is not only keeping rates quite high – and does not seem to have any intention of lowering them for now – but it also continues to dump securities on the market (another restrictive move in terms of monetary policy).
Some will argue that other central banks are doing the opposite. However, it is in America that the most important game is being played.
So much so that – here Lutnick of Commerce – the nervousness in the US government about rates considered too high is… evident. And this is certainly not the environment of a bubble.
Bubble yes: we are working against the fundamentals
This mainly concerns the sector that is driving the stock market, namely AI . Today we have billions in investments and plans to make them profitable that do not seem to be very solid.
The performance of Nvidia , which we report in the graph – would be for the Cassandras an unequivocal example of the bubble. However, for years now we have been hearing about a bubble also in this sector, without having witnessed anything unreasonable.
Sooner or later it will explode: but we don't know yet whether it has been created or not
Despite the attempts of central banks to operate in a counter-cyclical manner , that is, by compressing excessively rapid growth and at the same time trying to contain any bubbles and explosions, we are now accustomed to an economic cycle that is made up of booms and bursts , that is, swellings and subsequent explosions.
The majority of our readers, being young, will unfortunately experience the explosion of a bubble sooner or later. That day, perhaps, forgetting this in-depth analysis, they will consider the prophets of doom to be great geniuses. However, by dint of saying that everything will collapse, sooner or later they will be right. And it is not said, in fact, that it takes a great genius. It only takes a great deal of nerve, in repeating.
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