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Bitcoin could be gearing up for a massive move up, according to Eric Peters, investment chief and CEO at Coinbase's (NASDAQ:COIN) Coinbase Asset Management unit.
Peters said in an Aug. 25 "Bankless" podcast episode that the cryptocurrency market, especially Bitcoin, had a 25% chance of experiencing a "South Sea bubble-type move" when asked how high cryptocurrency assets can actually go.
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The South Sea Bubble refers to a significant financial collapse that occurred in the 18th century, involving British joint stock firm South Sea Company. The company had a monopoly on supplying slaves to Spanish plantations in the Americas, promising huge profits and high returns. But when the trade failed to take off it turned to fraudulently inflating its valuation to keep the ruse going and for while it worked. The growth of the company's stock triggered a speculative frenzy that peaked in 1720. The company's stock soared over 680% within the year before crashing over 80% as the bubble eventually burst.
Peters said that Bitcoin and the broader cryptocurrency market could experience a similar rally as barriers to entry for big institutions disappear and passive flows increase due to the limited supply.
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"Everything else that humans have ever invested in, if the price goes up, you create more of it," he said. "You don't create more Bitcoin. I mean, you're creating a little bit, but there's no big supply response. The rate of mining creation is not going up because the price doubles or triples or quadruples. It just doesn't go up. You have to just get people who currently own it to sell it at a higher price. So, you could see some type of massive move."
Beyond the potential of a South Sea Bubble-type run-up, Peters also said that he believed there was another 25% probability that Bitcoin would swing wildly between $50,000, $75,000 and $250,000 over the next five years. And beyond this, he said that there was perhaps another 25% possibility that Bitcoin would trade even lower over the next five years.
"I don't know," he said. "It would probably be [sic] hostile administration. Some things really went wrong that I can't foresee right now."