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Is Bitcoin a Bubble?

Like wt*, in 2017 it feels like ICOs are the new stocks (or IPOs) and Bitcoin is an unstoppable force, or a bubble. Looks like Satoshi Nakamoto was on to something. Odd though, that it took us ten years to figure this out.

What a crazy year it’s been, as Millennials trust cryptocurrencies more now than regular stocks and Wall Street. Is the Bitcoin a Bubble? It’s a legit debate and everyone from Nigerian scammers to Japanese regulators want in.

Let me put this in some perspective for you, the value of Bitcoin has risen an astonishing 604% so far this year. The banking world has yet to make up its mind even on what Bitcoin is or represents. That’s not the case however with national banks. Japan, India, Russia, Estonia, Kazakhstan among others are planning to create a fiat equivalent of their currency with a blockchain cryptocurrency equivalent. It makes you wonder what’s going on.

Ethereum, its closest competitor of Bitcoin and a smart contract platform for decentralized blockchains, has risen 3,562%. Say what? I got to admit, the debate over if Bitcoin is a bubble or not, is making us see financial pundits and crypto advocates alike, in a new light. It’s like witnessing a turf war over the future of finance, banking and how Millennials invest their money.

What many people don’t realize is, this wouldn’t be happening if Millennials trusted the financial institutions currently in place. While nations scramble to enter cryptocurrencies, but not legit decentralized blockchains, it makes you wonder how that changes anything. If startups can leverage ICOs as a new means of crowdfunding though, that feels a lot more transparent.

So why the trust epidemic for Millennials? Higher student debt, poorer quality jobs, inflation on housing that’s unsustainable, so many reasons. But especially wealth inequality. My personal take is that the cryptocurrencies going mainstream in 2017, actually signals how young people are fed up with wealth inequality. I wonder why, right? The richest 1% of families and individuals around the world now hold over half of global wealth, according to a new report from Credit Suisse.

Millennials are hungry for more equitable alternatives, and Bitcoin and Ethereum and the whole value system around the blockchain, caters directly to this. Millennials sort of have a sense that the next wave of AI automation, could impact their already unstable professional existence, as many strive to survive with side hustles, multiple gigs and almost being forced to make unconventional professional choices that would be unthinkable before the Great Recession (2008). Btw, the richest 10% of households own 88% of the world’s assets.

Bitcoin may indeed be a bubble, but is Ethereum, is the blockchain? That’s the real question. The top 1% own 50.1% of all household wealth in the world. Starting in 2018, we are going to see a slew of multi-national firms hit the trillion dollar club in valuations, likely including Apple, Amazon and Google to begin with. In the years to come, more and more of that club will be Chinese firms.

The Thing about Bubbles

Here’s the thing about bubbles, in the attention economy hype is also dangerous. Financial analysts have pointed out that we never used to get a giant speculative bubble every 7–8 years. That would be recessions, and we’ve skipped one, or is it just around the corner? As for bubbles it’s hard for individuals to easily spot them though they are damn obvious for a historian or someone NOT a Millennial. In 2000, we had the dot-com bubble. In 2007, we had the housing bubble. Will 2019 be a crypto-bubble? Crazier things have happend.

Nearing 2018 it’s becoming clear that Bitcoin’s performance is dwarfing the tech stocks run of the 90s, but the dot.com mania was another level. Blockchain is turning out to be something special for the future of business, but it isn’t a paradigm shift like the web was, yet.

But keep the facts in mind, what we’ve witnessed with shady Bitcoin is something very strange.

At the beginning of 2015, Bitcoin was trading just above $300. In early November this year in 2017, the Bitcoin price topped $7,600. That’s quite a lift and that excessive jump is what makes many people in Finance call Bitcoin out as a bubble. Though you will notice their own predictions about Bitcoin are universally and wrong on a regular basis.

Anyways, Bitcoin’s ascent in nearly 3 years amount to a 2,200% jump. Whatever Bitcoin represents that’s sustainable, it’s now history that Bitcoin’s run has far outpaced the tech bubble, and its returns have already dwarfed dot-com mania. That’s a Millennial and global phenomena, it’s on our watch, and represents a new order.

What is amusing of course with Bitcoin is that it’s a proxy for the blockchain. Long after Bitcoin had gone extinct, with all its various forks, Ethereum, and it’ Chinese equivalent, NEO and the blockchain will live on. In 2017, it’s commonly understood that blockchain will extend well beyond crypto or payments, and moreover, underpin new solutions to smarter automation of AI that’s more secure with our private info.

Besides, whether you’re a backer or a detractor, or a slacker on Bitcoin for that matter, what’s not in doubt is bitcoin’s somersaulting rally this year. In late 2017 when China cracked down on Bitcoin trading, Japan made it legal and already you can pay in Bitcoin with hundreds of retailers. Weirdly, between 2014 and January 2017, the Chinese market made up around 90 percent of global bitcoin trading volume. When Beijing’s central bank quietly announced they were working on a cryptocurrency for their fiat, it appears they decided to kick Bitcoin and especially interest in Ethereum out, since of course volatile decentralization is not compatible with the one-party socialist state, a highly centralized regime of control.

Suddenly, Bitcoin trade in Japan accounts for about half of the global trade volume. Here is a fascinating video on this by CNBC of all people. The video depicts the extent to which Japan has embraced the crypto movement and where you can pay via Bitcoin by QR code at retailers, some 4,500 stores according to the source.

However Bitcoin does feel like a cheap pyramid scheme in some sense. The number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, or approximately four years. The result is that the number of bitcoins in existence is not expected to exceed 21 million. Whatever does end up happening to Bitcoin Cash or the forthcoming Bitcoin Gold, it’s not the sure bet blockchain is turning out to be.

The blockchain still has an issue with scale. 11 million Bitcoin transactions per quarter really is not so impressive. Ethereum is more likely to solve this, and thus is likely to take over head horse status in how cryptocurrencies evolve. This would not please China of course, so they will likely propel NEO as far as they can, while having control over whatever cryptocurrency they come up with. We can expect Asia to be more progressive with cryptocurrency fiat money, such as India’s Lakshmi. They have less to lose, as the reliance on the U.S. dollar — just like the existence of Silicon Valley are like monopolies that hold back real innovation in the West. Japan still is the 3rd biggest global economy, we sometimes forget and that they have embraced Bitcoin, bodes well for its status for at least two more years. I really do think the bubble could burst in 2019.

Correct me if I’m wrong? Stay tuned, I’m going to be writing more on cryptocurrencies and crypto news as it happens.