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Oliver's Insights - Bubbles, busts, investor psychology... and bitcoin

Shane Oliver, Head of Investment Strategy and Chief Economist.

The attached note looks at the role of investor psychology and crowds in driving bubbles and busts in investment markets and applies this to the frenzy around bitcoin (that has risen in price this year from $US952 to over $US8200). The key points are as follows:

  • Investment markets are driven by more than just fundamentals. Investor psychology plays a huge role and along with crowd psychology helps explain why asset prices go through periodic bubbles and busts.
  • The key for investors is to be aware of the role of investor psychology. A great defence is to be aware of past market cycles and bubbles - so nothing comes as a surprise - and to take a contrarian approach.
  • Crypto currencies and blockchain technology may have a lot to offer but bitcoin's price is looking very bubbly.

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