Is Bitcoin a needle or a bubble

Firstly, we see Bitcoin as less of a pure currency and more as a pseudo commodity currency in the same vein as gold. What I mean by this, is that much like the precious metal, Bitcoin is mutually interchangeable (fungible), there is a limited amount (scarcity) and it’s easily divisible, durable and transferable. All the attributes, an economics teacher will tell you, are needed for an asset to be classed as money. However, unlike paper money (fiat currency) there is only a limited amount of gold and Bitcoin available and it is this scarcity that is, in our opinion, one of the stronger cases for investing in Bitcoin.

If we take a step back and look at the actions of central banks over much of the last 10 years, you can see that the overall fiat money supply has increased exponentially on the back of loose monetary policy and billions upon billions of pounds worth of money printing. It is important to note here that every additional unit of currency pumped into the economy has the potential to reduce the spending power of the existing units – inflation to you and me. Looking at this scenario, and though inflation has yet to pick up significantly (although we can’t rule it out), it is easy to see why investors may start to become concerned regarding the future of fiat currency based system considering how heavily the system has been, and continues to be, manipulated. Indeed, it is now questionable whether central banks will ever be able to truly withdraw the whole myriad of stimuli.

Fear of missing out
The problem however, is that whilst a generous portion of early investors invested into Bitcoin to diversify away from the global money system, the potential systemic risk therein and, let’s be honest, to transact illicitly, it is our opinion that people are now investing for different reasons entirely. Namely, the fear of missing out and greed.

In fact, Bitcoin looks to us to be an extreme but analogous scenario of something we’re seeing across asset classes globally. What we mean by this, is that no matter what you have invested in over the past nine years, you have not made an insignificant amount of money, as loose monetary policy has inflated asset prices. It is a concern of ours then that the prospect of meaningful growth in an environment where all other markets look expensive relative to history has seen investors pile into what they consider to be the only game in town outside of the VIX. A point made to some extent through anecdotal evidence including investors mortgaging their houses in favour of Bitcoin and investors buying into leveraged Bitcoin exposure – scary stuff.

So, is Bitcoin the bubble or the needle?
To put the extent that Bitcoin has exploded into context, you need only look at the price. Bitcoin in USD started the year at $999 and is worth $16,955 today, that’s a return of almost 17x, a figure that is perhaps too tempting to resist. A point highlighted by the fact that Bitcoin has now surpassed “Tulip Mania” as the biggest recorded ‘bubble’ in history – if of course it is a bubble at all. One school of thought is that Bitcoin isn’t in fact a bubble but rather the needle popping the wider QE asset bubble however that is predicated on investors investing into Bitcoin for reasons other than those previously mentioned.

Thanks to iboss this article.

https://www.ibossam.com/bitcoin-bubble-needle/?dm_i=4ELE,5KEQ,1IN03Q,LT7R