Analysts at Barclays made a model of a theoretical speculative asset based on the types of models epidemiologists use to track diseases. The analysts compared the model’s predictions to bitcoin’s actual price swings over the past seven years to see how bitcoin’s path may play out in the future — and the results are shockingly similar.
“We developed a theoretical model of an asset price with a pool of speculative investors and compared it with actual Bitcoin price behaviour to see what it might imply for the future dynamics,” the bank said in its 63 rd annual Gilt Study. “The model has clear parallels with compartmental models of the spread of an infectious disease in epidemiology.”
As the hype for cryptocurrencies continued to swell, so did the price. But this can only happen for so long, Barclays explains, much like the spread of an infection among a population. Here’s more:
“As more of the population become asset holders, the share of the population available to become new buyers – the potential ‘host’ population – falls, while the share of the population that are potential sellers (‘recoveries’) increases. Eventually, this leads to a plateauing of prices, and progressively, as random shocks to the larger supply population push up the ratio of sellers to buyers (Figure 5), prices begin to fall. That induces speculative selling pressure as price declines are projected forward exponentially. Analogously, this occurs with infectious diseases when the immunity threshold is reached; ie, the point at which a sufficient portion of the population becomes immune such that there are no more secondary infections.”
Eulogy made by Barclays Bank