"Cryptocurrency, Similar to Epidemics"… The Timing of Robert Shiller's Appearance Is Quite Curious? [Bitcoin Twisting]

Robert Shiller, Yale Professor, Emerges as Bitcoin Plummets Over 10%
Cryptocurrency Market Shows Pandemic-Like Patterns
Endless Decline Possible if Fear Turns to Indifference

Cryptocurrencies are sweeping across the globe. It is even likened to a so-called ‘frenzy.’ However, the more intense the frenzy, the more necessary it is to pause and observe. If problematic aspects are swept away together, they are bound to manifest as bigger issues someday. This is a time to calmly reflect on the cryptocurrency market, a segment called ‘Twisting Bitcoin.’

▲ Robert Shiller, Yale University Professor

[Asia Economy Reporter Gong Byung-seon] Robert Shiller, a Yale University professor who had been quiet throughout this year, appeared on the U.S. economic media CNBC on the 24th (local time). In an interview with CNBC, he said, “Bitcoin is a highly psychological market,” and “its value is very ambiguous and moves more by narrative than reality.”

Professor Shiller is a master of behavioral economics. He was awarded the Nobel Prize in Economics in 2013 through narrative economics. Narrative economics argues that narratives, once considered irrational, drive the economy. This directly contradicts traditional economics, which held that rationality and reason shape economic phenomena. He cited Bitcoin as evidence for narrative economics. After the 2007 subprime mortgage crisis, Bitcoin grew alongside the narrative of anarchism, which means anarchism or anti-government ideology. He also explained that the anonymous developer Satoshi Nakamoto gave Bitcoin a detective-story-like yet romantic narrative.

Therefore, the timing of his media appearance is peculiar. At the very moment he was interviewed by CNBC, Bitcoin was falling 10.27% in one day based on the domestic cryptocurrency exchange Upbit, dropping to 39.33 million KRW. Why did he, who had not mentioned Bitcoin all year, appear only now? It is time to examine what problems have arisen in the narrative that led Bitcoin.

The weakening momentum of Bitcoin’s narrative... No super-spreader

[Image source=Yonhap News]

The momentum driving Bitcoin’s rising narrative has begun to weaken. The cause is the noticeably fading influence of Elon Musk, CEO of Tesla, who led Bitcoin’s surge earlier this year.

CEO Musk was more than just a figure bringing good news to Bitcoin; he was a messianic figure. When Tesla announced on February 8 that it had purchased about $1.5 billion (approximately 1.6725 trillion KRW) worth of Bitcoin, Bitcoin rose 17.05%. Not only Bitcoin, but every time he posted about Dogecoin on Twitter, Dogecoin literally shook.

According to Professor Shiller’s narrative economics, Musk was a very important ‘super-spreader’ of the narrative. He argues that for an attractive narrative to spread widely in the economy, a person with strong transmission power, like a host of an infectious disease, is necessary. CEO Musk fulfilled that role well in the cryptocurrency market.

However, due to Musk’s recent erratic behavior, he no longer plays the role of a super-spreader. He has stated that he still holds Bitcoin and has declared support for the North American Bitcoin Mining Council, but the cryptocurrency market remains sluggish. Moreover, even cryptocurrency investors who once revered Musk criticize that he should be punished for market manipulation allegations.

The problem is that if no new super-spreader emerges, the cryptocurrency market could crash. Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies said, “A super-spreader who surpasses CEO Musk must appear to inject momentum into the narrative for the cryptocurrency market to revive,” adding, “But it is doubtful whether there is anyone with both eccentricity and wealth like Musk.” In fact, Kim Jung-ju, CEO of NXC, and Ray Dalio, founder of Bridgewater Associates, have both revealed they hold Bitcoin, but neither has shown the influence comparable to Musk.

‘Fear’ filling the void left by the super-spreader

[Image source=Yonhap News]

In Bitcoin’s narrative, fear has replaced the super-spreader. The thought that cryptocurrency prices might plummet has begun to arise in the market.

Until now, what supported the Bitcoin narrative alongside CEO Musk was the investment success stories of ordinary people. Rumors that someone had been buying Bitcoin for years and made hundreds of millions in profits served as a kind of fuel that energized the Bitcoin narrative.

Experts point to rumors related to ‘forces’ as the basis for fear spreading in the market. Cryptocurrency investors say that forces intervene in the market to pull down prices or increase volatility, but this too is a claim born out of fear. Professor Hong Ki-hoon of Hongik University’s Department of Business Administration said, “There may be forces,” but explained, “When prices rise, it is said to be because of value, but when prices fall, only then do forces stand out.”

In fact, recently, the cryptocurrency market has seen a tendency to excessively mention forces. On the Naver cryptocurrency community Bitman, from the 9th to the 16th of last month when Bitcoin surged, 596 posts mentioned forces in their titles. However, from the 16th to the 23rd of this month when Bitcoin plunged, the number of posts with the word ‘forces’ in the title was 655, even more. In fact, last month, posts related to forces were more about altcoins’ sharp declines or extreme volatility rather than Bitcoin’s rise.

Experts worry that fear in the cryptocurrency market could take on the nature of a ‘self-fulfilling prophecy.’ A self-fulfilling prophecy refers to a phenomenon where a prediction or forecast comes true simply because it was predicted. In other words, fear could lead to an actual crash or create new fears. Professor Hong explained, “If cryptocurrency market participants keep mentioning forces or fear, it could ultimately result in self-destruction.”

Referring to narrative economics... What is the outcome for the cryptocurrency market?

With Bitcoin’s narrative beginning to falter, according to Professor Shiller’s narrative economics, the future of the cryptocurrency market is not very bright. He argued that Bitcoin’s narrative goes through the same process as the spread and end of an infectious disease.

Professor Shiller explains that the spread of an infectious disease decreases in two ways. The first is isolation: reducing contact with infected individuals to halt the spread. The second is natural decline: if infected people die or develop immunity, the disease naturally disappears.

Bitcoin is now facing isolation and natural decline. Countries trying to isolate Bitcoin to prevent further contact are emerging one after another. China banned cryptocurrency trading and holding since 2017. Recently, it has gone further to block mining as well. In the Inner Mongolia Autonomous Region of China, not only cryptocurrency mining companies but also companies providing land or various services to them will be sanctioned. The U.S. is also investigating the world’s largest cryptocurrency exchange Binance for tax evasion and money laundering and delaying decisions on Bitcoin exchange-traded fund (ETF) launches. In other words, governments continue to send negative signals to make it difficult to access Bitcoin.

The possibility of natural decline has also increased. In September, a wave of closures is expected among cryptocurrency exchanges that fail to meet the standards of the amended Specific Financial Information Act. This is akin to participants in the cryptocurrency market disappearing naturally as they cannot endure the epidemic. Although the number of cryptocurrency exchange subscribers has increased every month this year, there are forecasts that it will not increase significantly from May, when Bitcoin’s upward trend stopped. This can be seen as an increase in people who have developed immunity to the Bitcoin narrative.

In his book, Professor Shiller points out, “The pattern of an increase in the number of infected spreading the narrative followed by a loss of interest and a decrease in conversation is identical to the pattern of the spread and decline of an infectious disease.” Even if the current stories are negative, Bitcoin-related discussions continue steadily. However, when interest in cryptocurrencies itself declines, prices could crash. The scariest situation is one where indifference is the appropriate word.

This content was produced with the assistance of AI translation services.