On January 12, 2018, as the cryptocurrency market struggled to find its footing after a brutal week of selling, one of the world’s largest banks delivered a sobering assessment. Credit Suisse published a research paper on the Social Science Research Network arguing that the initial coin offering boom of 2017 was the clearest indicator yet that Bitcoin was in the midst of a financial bubble — and that the mania bore unsettling parallels to some of history’s most famous speculative episodes.
TL;DR
- Credit Suisse published a paper by analysts Dietmar Peetz and Gregory Mall on SSRN on January 12, 2018
- The paper argues that the $5 billion+ ICO boom of 2017 is the clearest indicator of a Bitcoin bubble
- Authors compare ICO exuberance to the dotcom bubble, noting the dotcom era at least involved companies with real revenues
- Credit Suisse places Bitcoin in a new, distinct asset class — not a currency
- The paper blames central bank easy money for creating a “bubbles everywhere” investment landscape
- Bitcoin traded at approximately $13,980, Ethereum at $1,273 on January 12
The ICO Problem
The Credit Suisse paper, written by Dietmar Peetz and Gregory Mall during the fall of 2017 and published on January 12, pulled no punches in its assessment of the ICO phenomenon. Initial coin offerings had raised more than $5 billion throughout 2017, according to data from Token Data, creating a funding mechanism that blended seed investing with crowdfunding — often with little more than a white paper to justify the capital being raised.
“These ICO tokens often trade at penny-stock prices, experiencing dramatic price increases within hours and are often trading at very low liquidity,” the paper stated. “Most of these companies merely offer a so-called ‘white paper,’ basically a business plan that explains which product a company wants to develop in the future and how it wants to market it. Most of these promised projects are praised as having huge potential but are extremely uncertain to be actually developed.”
What made the Credit Suisse assessment particularly damning was the comparison to the dotcom bubble. While the authors acknowledged similarities in the speculative frenzy, they noted a critical distinction: the dotcom era involved companies that were at least selling real goods and recording actual cash flows. Many ICO projects, by contrast, offered little more than promises on paper and tokens with questionable utility.
Not a Currency, a New Asset Class
The Credit Suisse analysts pushed back against the popular narrative that Bitcoin could function as a everyday currency. Instead, they placed it into a new, distinct asset class, arguing that Bitcoin’s extreme price volatility made it fundamentally unsuitable as a reliable medium of exchange or unit of account.
“The enormously high bitcoin price volatility makes it unsuitable for a reliable day-to-day exchange medium,” the paper noted, pointing out that a currency cannot function as a clearing mechanism for payments if it cannot be accurately valued. While the authors acknowledged that Bitcoin volatility had declined from its 2014 peak and could fall further through financialization, the fundamental problem remained.
The paper also pointed to historical precedent to suggest that governments could move aggressively against Bitcoin if it became a systemic concern. The authors cited the Gold Reserve Act of 1934, which nationalized all gold in the United States and subsequently revalued it by 69% in dollar terms, as a template for how authorities might respond to an unwanted alternative currency during a time of economic stress.
The Greater Fool Theory
Perhaps the most revealing observation in the Credit Suisse paper was its acknowledgment that most crypto investors were fully aware they were participating in a bubble — they simply did not care. “Most investors acknowledge the bubble situation,” the authors wrote. “However, they argue that central bank’s easy money will help the bubble mania to grow bigger and bigger, thus attracting even more investors (speculators) looking for easy profits. They remain bullish because of the Greater Fool Theory.”
The paper went further, connecting the Bitcoin phenomenon to broader macroeconomic forces. The financialization of Bitcoin, Peetz and Mall argued, was not an isolated event but rather a symptom of the “bubbles everywhere” investment landscape created by nearly a decade of unprecedented monetary expansion by central banks worldwide.
“Borrowing money for free and having easy access to capital and leverage (for big entities) is the fuel asset bubbles crave,” the paper stated. “By aggressively mitigating the effects of the 2008 financial crisis via unparalleled global monetary debasement extending for nearly a decade, central banks have brought us today’s ‘bubbles everywhere’ investment landscape.”
What Could Pop the Bubble
Despite the bearish long-term outlook, Credit Suisse did not predict an imminent collapse. The paper suggested that Bitcoin’s price could continue rising in the short to medium term, particularly if institutional demand increased. The most realistic scenario, the authors argued, was that Bitcoin would keep climbing until “hype fades” and “monetization or return prospect realities begin to set in.”
As for specific catalysts that could trigger a reversal, the paper pointed to two possibilities: a crash in the broader equities market or a potential government ban on the possession of Bitcoin. Both scenarios were plausible enough, the authors suggested, that investors should not dismiss them.
The cryptocurrency market on January 12, 2018 painted a picture of a sector at a crossroads. Bitcoin held at $13,980, down significantly from its December peak near $20,000. Ethereum at $1,273 showed relative strength with double-digit daily gains. XRP at $2.04, Bitcoin Cash at $2,621, and Cardano at $0.90 rounded out a top five that collectively represented hundreds of billions in market capitalization — and billions more in investor anxiety.
Why This Matters
The Credit Suisse paper published on January 12, 2018 was one of the first comprehensive analyses from a major global bank that explicitly connected the ICO phenomenon to a broader Bitcoin bubble thesis. Its arguments about central bank easy money fueling speculative excess across asset classes proved remarkably prescient — similar dynamics would recur in 2021 and beyond. The paper’s comparison of ICO white papers to the empty promises of the dotcom era became a framework that regulators worldwide would adopt as justification for cracking down on token offerings, fundamentally reshaping how crypto projects could raise capital.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always conduct your own research before making investment decisions.