This isn’t going to be well written because I don’t care enough to spend the proper amount of time on this, but I wanted this written down somewhere.
The amount of people comparing bitcoins to tulips recently is driving me insane. There seems to be a very high correlation between people who think bitcoins are the 2017 version of tulips and people who think that bitcoin is overvalued / in a bubble. The definitive statement responding to these people would be —
Assuming the resolution to the bitcoin scaling problem doesn’t a) create two chains permanently and b) doesn’t destroy the confidence in the governance model, bitcoin is actually severely undervalued at $2800 / coin.
If bitcoin can’t implement a scaling solution without something catastrophic happening, then all bets are off and you can stop reading here. If bitcoin reaches a scaling solution without a major chain split, you could literally pile every last dollar you have into bitcoin immediately and you’ll more than likely 4x your investment. It’s really that simple — if bitcoin resolves the scaling debate amicably (not highly likely as of 6/8/2017), the risk factors associated with bitcoin are pretty much limited to —
- SHA-256 collisions being produced required a PoW change via hard fork thereby killing the 10s of millions of dollars invested in mining equipment resulting in the hashrate dropping to levels that make the network insecure.
- The current economic theory about the fee market / mining reward halving is wrong and mining becomes unprofitable and miners leave the network requiring a PoW change or a change to PoS. (For the record I actually think this is the most likely, although still remote, scenario in which bitcoin encounters a serious operating issue.)
- Mining centralization somehow gets worse causing developers to “nuke” the mining investments through a PoW hard fork.
- Government interference in such ways as banning mining because of “green” policies, actively hunting down decentralized exchanges (since decentralized exchanges will probably be the next evolution) like they do other dark net sites, some adverse government reaction to increased privacy and fungibility or a continued killing of wire transfers since this mechanism is extremely centralized.
There’s some obvious short term, but mostly recoverable risks like exchange hackings, exit scams, Satoshi’s coins re-entering circulation, etc., but almost all of these events are recoverable with strong enough holding hands.
So Why are Bitcoins != Tulips?
Bitcoin’s value isn’t going to go up in a straight line — it will have ups and downs like any liquid equity market. However, the low IQ rush to call “bitcoin dead / it’s tulipomania all over again” every time there’s a gigantic red candle is symbolic of the weak handedness of today’s society. I can’t even believe I even have to write about this, should be fairly obvious, but here we go —
- Bitcoins are immutable. Tulips were nothing but a new / seemingly rare commodity, but, in the long run, would have almost an infinite supply. There will be 21 million bitcoins. That’s it. Some are currently locked away in a bunch of wallets believed to be held by Satoshi. Some bitcoins will be lost and thereby destroyed forever (technically, they will reside in wallets that become inaccessible although, theoretically, older wallets could later become susceptible via advancements in crypto breaking techniques and these coins reharvested).
- It requires an immense amount of energy and infrastructure to secure the bitcoin network. This level of infrastructure is not easy to replicate in any meaningful way. There’s no such entry barrier to tulips as well as no infrastructure investment comparable to what’s needed to secure the bitcoin network. No such infrastructure is needed to cultivate tulip bulbs. (Even if a switch to Proof of Stake happens in the future, which may have to happen, the infrastructure required to properly decentralize and secure the network would be immense.)
- Bitcoins could, in theory, exist forever as long as the code / math / cryptography stays ahead of modern technical advances (it should) and there’s enough energy to keep the network operational (it should). Tulips will die and bulbs have a shelf life. One is perishable, one can (if properly cared for) exist forever.
- As a store of value bitcoins can be absurdly easy to transport from one location to another (in fact, bitcoin is far better than fiat in this way and more secure). The common refrain of a “Swiss bank account in your pocket / head” (if you can memorize your 12 recovery words) is used to state exactly how powerfully transportable bitcoins are as a store of value. Gold fails miserably in this arena. Tulips? Far, far worse than even gold.
That enough reasons? If not I can add more later.
Are Altcoins in a Bubble / Tulipomania?
Yes. Absolutely. There are so many terrible altcoins that no one is actually using that are purely speculative pump & dumps that the altcoin bubble will bust at some point. Again, ask yourself, which of these altcoins, if I had to lock in my investment for 10 years, would you invest in? The answer is maybe Ethereum and that’s about it.
When the altcoin bubble does burst, some money will flow back into bitcoin, bitcoin may see its price negatively affected as it gets unfairly dragged down, but this will simply be a consolidation phase.
I’m sure there is more to expand upon here, but I really don’t care enough and no one is going to read this anyways.