"Don't invest in Bitcoin! It's a bubble!"

A bubble is a run-up in the price of an asset that is not justified by the fundamental supply and demand factors for the asset. Bubbles can occur in any traded commodity or financial instrument.

-- Forbes

Does this apply for Bitcoin? There is definitely a run up in the price of Bitcoin, since everybody now wants to jump on the bandwagon in the hope they will also share in the profits of the growing market. I suspect that the price growth is at least partially caused by this, and therefore the price is rising faster than without the current Bitcoin hype. So, the run-up in price is not fully "justified by the fundamental supply and demand factors for the asset".

This is one of the most important arguments used by opponents of cryptocurrencies. This approach is normally not my favorite. I'm all for free markets, but I'm not a fan of free-market economists who think they can solve all problems with a few simple tricks. Macro-economics are fun in hindsight, but economists almost never accurately predict the future (Check my post about that here).

So, if people shouldn't adopt Bitcoin because it's a bubble...

What about these bubbles?!

• Central banking, fiat currency, and the business cycle

Do you remember this chart that they taught you in school?

It's called the business cycle, or conjuncture. Every seven years or so, the economy is doing well and reaches a peak, and the next period of seven years, the economy doesn't do well, resulting in a recession.

So, what do central banks do about the ever returning recession? Print print print! Apparently, this gives a temporary boost to the demand-side of the economy, so that the supply-side catches up again.

The result is that every seven years, a new bubbles is literally created by the central bank. Remember that this is all happening with dollars, euros, etc.

What are the consequences?

Well, this.

Source: polination.wordpress.com

What that means for you is... this.

The truth is that the economy can't be fixed with just a couple of simple tricks done by a bank or a state. Human beings aren't robots who rationally act according to economic theory. It's THEORY after all.

Thanks to Spanish Libertarian for the subtitles!

So what about Bitcoin?

Well, there are multiple arguments to be made about Bitcoin not being a bubble, but that goes beyond the scope of this post. However, what we do know is that this is not an argument against investing/buying/adopting it. We can see bubbles everywhere, and Bitcoin might only be one of them. The dollar (and other fiat currencies) experience a bubble every seven years or so. And we're not even taking into account the housing bubble yet.

Cryptocurrencies are a solution in many aspects. It's decentralized, it gives you the power over your own money. It removes the middlemen, such as banks and the state, which controls your wealth through coercion. I can see various cryptos becoming adopted by the masses, and I hope it will make an impact in people's everyday lives. Of course, there is always room for new, even better alternatives, but cryptocurrencies will definitely become the standard.

So, think about Bitcoin what you want, but it doesn't matter that it's currently a bubble. If you're just in it for the quick money, know that you can lose everything. The more important thing is the technological and philosophical revolution that crypto has brought about. The world has changed forever because of this new way of interacting with others and it will never disappear. The only thing that we should be worried about is when governments around the world want to regulate (i.e. violently control) these solutions that endanger them.

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