Note: I am not a financial advisor.
This article:
will attempt to address these four items about Bitcoin/cryptocurrencies.
- So…I’ve heard about this bubble thing.
- What creates bubbles?
- What makes it a bubble?
- What makes it not-a-bubble?
So…I’ve heard about this bubble thing.
"Bitcoin is a bubble." -the dude on CNBC
"Bitcoin is not a bubble." -the same dude on CNBC
People say it so definitively. People are so sure of the future, that they either want to protect you or they don’t want you to miss out. They make predictions like palm readers, basing their claims on nothing more than intuition.
"I can say with almost certainty that they will come to a bad ending."
-Warren Buffett
"I now predict Bitcoin at $1 million by the end of 2020. I will still eat my dick if wrong."
-John McAfee
Yet,
no one truly knows. Sure, blockchain is here to stay. And sure, there are valuable problems being solved by certain cryptocurrencies. But really, what do we know?
It seems like the only consistent thing about Bitcoin is that it is inconsistent. It doesn’t do what we expect. It rises and falls. It dips and it goes to the moon. It looks like it’s dead and then it reaches a new all time high. One day it is fake money used by criminals and the next day it is the saving grace of the future.
What creates bubbles?
Overvaluation and Unsustainable Growth from hype, herd mentality, and FOMO based on these 3 criteria:
- speculation activity about new technology
- positive feedback
- hot markets for IPOs/ICOs
Feel free to do your own research but several famous bubbles that are often thrown into comparison with Bitcoin/Crypto are:
• Dutch Tulip Mania
• Stock Market Crash/Great Depression
• Dot-com Bubble
In the Tulip mania, people perceived value in something that was not inherently valuable nor useful: tulips. And through this people wrongly imagined the perceived value would continue its trend of appreciation. AKA, the Dutch were feeling bullish about tulips. The thinking goes…
If it was valuable last year and more valuable this year, then it will be even more valuable next year
In the 1920s Stock Market Crash and the Dot-com Bubble, people perceived value in the new technology. And so, for the 1920s, there was both excitement and speculation around the new developments of radio, aviation, and automobiles. But what this can lead to, as people found out, is a positive feedback loop where you invest, earn money, invest, earn money, until eventually a market is over-saturated.
For the Dot-com bubble, people also got excited about new technology. Anything that smelled of the world wide web was thrown money. And so IPO’s happened and happened until there were companies and websites that essentially didn’t provide any valuable product or service. Again, over-saturation.
And so…
we come to Bitcoin/cryptocurrencies. And the thought (or FUD) that keeps creeping into people’s minds and into news headlines.
Is it a bubble?
Truly no one knows. There’s people standing firm on both sides.
So, does it fulfill the three criteria? Yes. But does that make it a bubble? Not exactly.
These are uncharted waters. And unlike the tulips there is actual value being created and there are actual problems being solved. And unlike the 1920s Crash and the Dot-com bubble, regulations are happening along the way and now have a global market. Anyone with a cell phone can get involved.
So I will provide some thoughts, without any certainties and without any definitive answers. In my opinion, Bitcoin/cryptocurrencies both are and aren’t a bubble.
Yes and No. And here’s not why, but WHEN.
When is it a bubble?
- ICO’s receive money no matter what
- people throw $ in w/o research
- hope for unrealistic growth
- FUD works
- hacks happen often
- corruption happens often
- relies on new investors (Ponzi)
- only goal is to make money
- hope is to take profits out into fiat
When is it not a bubble?
- ICO’s receive critique no matter what
- people throw $ in w/ research
- hope for realistic growth
- FUD doesn’t work
- hacks happen & improvements
- corruption aided by regulation
- if you build it-people will come
- goal is to solve problems
- hope is to use crypto in your future
—I will only speak about the first and last one in each list—
First:
ICOs. Do your research. Don't just throw money at a website that has the right words, the right polygons, and a team with a dude from MIT. Better yet, don't throw your money at all. Buy into projects not promises. Buy into projects you understand and believe in. Buy into projects that are already creating value/solving problems in the world.
Second:
Hopes. If your hope is to get rich investing in Crypto and to pull your money out—then you are helping to create a Ponzi scheme. You are contributing to the bubble. You are driving value up and then getting out. And I'd say, take your money elsewhere. Go to Vegas and gamble. Because what you're relying on, is your own intuition and getting lucky with your timing.
But...if your long term hope is to spend Bitcoin (BTC) at Subway or send Lumens (XLM) to your brother in New Zealand or be compensated in Enigma (ENG) for sharing your data, then get involved and make haste (slowly).
Festina Lente
