Economist and Nobel winner Robert Shiller is warning savvy investors not to get trapped in the media hype about the wonders of cryptocurrencies.
All the buzz about digital currencies is just noise, he explained to CNBC.
Shiller compared the cryptocurrency to the bimetallism fad of the late 19th century when both gold and silver were accepted as legal tender, CNBC explained.
"I'll take bitcoin, too, because I know I can sell it and get out of it. There seems to be some strange enthusiasm for it," said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.
"People get excited about things like new monetary standards. Remember bimetallism? It went into a fad, everyone was talking about it for a while. And then it faded," said Shiller, who also helped develop the widely-followed S&P/Case-Shiller Home Price Indices.
"I think gold is a bubble, but it's always been a bubble," hedged Shiller. "It has some industrial uses, but it basically it's like a fad that's lasted thousands of years."
On the markets front, the economist noted that he's seeing some worrying signs in his data around the anniversary of the fateful 1987 stock crash.
Shiller developed the cyclically adjusted price-earnings (CAPE) ratio market valuation measure, which is calculated using price divided by the index's average historical 10-year earnings, adjusted for inflation.
"Confidence in the valuation of the market is indeed the lowest it's been since 2000," warned the economist. "And when it got low in 2000, the market fell about 40 percent. So it was bad."
"I think there's a danger, but I'm not saying to sell everything. I'm still in the market myself."
Shiller isn't alone in his skepticism about bitcoin.
Gold wins out over cryptocurrencies when assessed on the majority of the key characteristics of money, according to Goldman Sachs Group Inc., which adds that fear and wealth are the core drivers of bullion, Bloomberg reported.
“Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” analysts including Jeffrey Currie and Michael Hinds wrote. “They are neither a historic accident or a relic.” Looking at properties such as durability and intrinsic value, they are still relevant even with new materials discovered and new assets emerging, such as cryptocurrencies, they said.
Investors boost the amount of gold in their portfolio as uncertainty increases, making fear the key medium to short-run driver, Goldman said. Wealth is the long-term driver, especially in emerging markets such as China, where growing income levels over the next few decades will support prices, it said in a report.
Bitcoin has put in a phenomenal performance this year, soaring toward $6,000 after starting the year around $1,000. In contrast, gold is up 12 percent. The bank listed several characteristics to compare them, adding that it’s focusing on the currency, not the blockchain technology.
Initial coin offerings have become the stuff of legend among speculators seeking quick windfalls, yet most people are more likely to lose money investing in digital tokens following the sales, Bloomberg also reported.
While more than $3 billion has been raised this year by technology startups using the method to circumvent traditional ways of raising capital, a closer examination shows that gains are often fleeting if the tokens are purchased after the offerings. The Bletchley Ethereum Token Index, which tracks 25 of the largest tokens, including Bancor, Civic and OmiseGo, has dropped by half since June.
The index includes tokens when they are at least a month old, have a market capitalization of about $90 million and trade on prominent online exchanges. It doesn’t include returns some select investors realize right after an ICO, or tokens that have tiny market caps.
Of the top five ICOs by amount raised, three have gone down significantly since the offerings. EOS, which raised $185 million, is down 45 percent. Bancor, which garnered $153 million, is down 47 percent, and kin, with about $100 million raised, is down 27 percent.
"It’s a bit of a coin flip whether a particular project goes to zero or skyrockets," said Lex Sokolin, partner at Autonomous Research LLP.
(Newsmax wires services contributed to this report).
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