Bitcoin: Bubble or Great Store of Value?

This article seeks to justify the current valuations of bitcoin, to simply prove that its current pricing against fiat currencies such as the euro and the dollar does not constitute a bubble. Instead, it is the euro and the dollar which have all the features of a bubble.

NL: Zelfde artikel in het Nederlands, klik — Bitcoin: Zeepbel of geweldige waardeopslag?

Let’s get the following out of the way first: If you think bitcoin is a bubble, then it is a bubble. Simple as that. The world is as you see it.

So all right, you “bubbler”: happy now? No? Why not?

Why do we have these bitcoin bubblers all around the Web? If they think it is a bubble, it is a bubble. And who cares about bitcoin if it is a bubble? Just forget it, period.

Bubblers don’t hear the bitcoin music. They think those who do hear it are insane. Do these deaf bubblers do any harm? I think they do, and here is why: these bubblers also try to convince others that bitcoin is a bubble.

OK, then let’s also get this out of the way: If people want to burn their fingers and blindly follow the bubblers without educating themselves about this new innovation, then let them go down that path. Do not try to instruct them otherwise, don’t remind them of all the benefits, don’t give them any proof. Why not? Because it is all about what they believe. And if they believe something that might not be true, they have to feel the pain of that error. Like a young child who reaches out for a hot cup of tea over and over again. They need to get burnt before they might start to believe different things. This is the only way to learn for some people, most people, if not all.

This means the following summary of realistic reasons why bitcoin is not a bubble is totally useless. I do not recommend that anyone read the following four bullet-points. These are just a bitcoin fan-boy’s clubhouse homecoming. Skip it, and stick to your belief in the bubble. It’s going to pop, burst — yes, for sure.

1. By buying bitcoin now you gain the following effect, featured by no other bubble in the past: Rather than picking a horse, you’re buying (part of) the horse track. No matter which horse wins, you always win. Within this metaphor a bubble would be some highly overrated horse trying to win the race; but because bitcoin is the track for all horses, this is not a bubble as long as there are races going on. And there is a sharply increasing amount of races due.

2. With every new bitcoin-holder we gain the same network effect fax machines had in the past. The valuation of that effect is real: everyone in the network benefits, whereas in a typical Ponzi scheme only a few benefit from newcomers. So bitcoin is not a bubble.

3. A bit difficult to grasp but nevertheless: Within a public blockchain we need a ‘currency’ (as a native token) to keep it safe and decentralized , and to pay for services by stakeholders in governance. On top of that, in bitcoin the money functions as a fuel within its own system; it is therefore no bubble, no sort of tulip-bulb mania.

4. Bitcoin has introduced digital scarcity which is built into the protocol and maintained by proof of work. By definition, there will not be more than ~21 million bitcoins ever released over the next (let’s say) hundred years. That is a transparent rule of the system. Bitcoin could be called a bubble if the protocol could create an endless stream of new coins, but it doesn’t do that.

In fact a comparison of the euro and the dollar to a bubble is more deserved in this perspective, because governments and banks create these currencies randomly out of thin air.

Hopefully you have skipped the four bullet points above, because they present a type of realism most of us can’t bear. It is too true. Let’s get back to bubblers.

Why do people try to convince you that bitcoin (price) is a bubble? There are three reasons why bubblers say what they say; they can be either:

- Consciously ignorant;

- Unconsciously ignorant; or

- Negligent when it comes to the required math.

Let go over these one by one.

Consciously ignorant:

Why would some party try to lull you asleep, to prevent you from buying bitcoin? Why would they try to convince you that it is a bubble? Because they themselves need to prepare longer to take their own “big time” bitcoin stake. But you don’t need that much time. In fact, you could own bitcoin within an hour, although it’s best if you’ve first given it some study for a few hours.

That would give you an advantage over large organizations, and that is why they want you to be prudent and not buy what they proclaim as a bubble. Because if you buy bitcoin, they have to pay more for it when they are ready.

This type of bubbler is harmless, they are just trying to be cunning and tempt you to delay so that they buy bitcoin first. You’ll then pay double, triple or tenfold, depending on just when it is that you wake up.

Unconsciously ignorant:

Some people truly believe that bitcoin is a Ponzi scheme, a Pyramid scheme, or even a scam. History might prove them wrong. Bitcoin is not a bubble for the reasons mentioned above; in summary: the network effect, digital scarcity, valuable fuel for the decentralized system, and riding a sea of success rather than hitting single waves over and over again.

How do these believers in the bitcoin scam do harm? The problem is simply that they don’t get it; isn’t that harmless enough? On the contrary. Just image what could happen if History proves these unconsciously ignorant people wrong. Will they then regretfully fall on their knees and accept bitcoin’s validity? I’m afraid not. Due to their strong beliefs, as they try to avoid losing face, people might still tenaciously cling to their convictions, even if the world they predicted is falling apart around them.

Those who don’t /can’t do the math:

Some people have a strong belief in the fundamental and disruptive innovation behind bitcoin that we call ”public blockchains” nowadays. Nonetheless, they also think that the bitcoin price is toxically surging, motivating even more people to speculation. Especially young folks and/or people with little money are said to run the risk of losing their money because the price will crash.

These bubblers also do no harm. They are just genuinely concerned about their fellow citizens and want to warn them of a bubble that is sure to burst.

The first remark here is motivational: Hold you horses, bubblers, there will be times in future when the price will indeed attain its maximum, and we’ll need you then. That is because by that time the first group that I mentioned (the ”consciously ignorant”) will be urging “buy!” while the remaining part of our second group (“frustrated believers”) won’t be taken seriously anymore. So by then you are welcome to bubble around as much as you like.

The second remark is: Do the math.

If you keep comparing the rise of the bitcoin exchange rate to fiat currencies and extrapolate these figures to that of “bubbles” in the past, you forget to do the math. The calculation is pretty simple and straightforward: there remain around 16–18 million unburnt bitcoins — period. We have at least 8 billion people in the world, of whom 1.8 billion do not have a bank account yet. Therefore: the maximum price a bitcoin could attain is one million euros/dollars each.

That calculation values bitcoin not as a currency per se, but as a store of value. What this is about is digital scarcity, a scarcity even better than that of gold. If you do the math, you will stop preaching about burst bubbles and instead say ”buy bitcoin, use it, earn bitcoin, use it, store it, use it as a unit of account because it ìs the next big thing and it ìs here to stay!”

I support people warning others about ICOs, scams, useless forks, and the like, but these developments are totally different from the foundational bitcoin network and its intrinsic unit of account, means of transfer and store of value: that is, bitcoin. The latter is not a bubble, while most of the former will most probably turn out to be just that.

I am an active supporter of the idea ”Education first, then buy.” So don’t buy if you have a lack of understanding about how to keep crypto-value safe. Study first.