The Bitcoin Bubble Inconsistency: It was a bubble, it's another bubble and it's always been a bubble?
I know I know. I've used the word "bubble" and I'm writing an article, boring! However, what concerns me more than the idea of Bitcoin being in a bubble is the inconsistency around the topic by the mainstream media as well as the general public.
More specifically, the lack of consensus over whether Bitcoin is "obviously" a 7-year long bubble since it's first recorded price in March 2010 of $0.003 cents all the way upto $20,000, or whether this is the third, or fourth bubble? Does this still make it a bubble? What is a bubble?
An increase of 666 million % definitely sounds like a bubble, but first let's get to some bubbly history in case you're not familar with BTC's short history. Wait a minute... firstly, let's have a think for a moment about why the media only talk of a a 1,000% annual increase being a bubble, rather than the 666 million %. 666 million sounds more relevant no?
Any ideas? It's because mathematical logic determines that anything that starts at an incredibly low value (in this case $0.003) is best 'ignored' as an anomaly, an exception to the rule. Say what?
In this case, back in 2011, low volume declared that Bitcoin could easily rise to $1 within a year without breaking a sweat. But somehow this 3,000% rise isn't a bubble? This is confusing. Who even makes these arbitrary decisions on when the bubble started?
Let's look at the rest of 2011 to see if this makes any more sense...
Well, that didn't help. Bitcoin leaps from $1 to over $30, that's an annual increase of over 1 million % already. But remember folks, apparently this doesn't count, because people have chosen that it doesn't.
Shit! It's a bubble. It crashes down to $2 in the same year losing over 90% of it's value. To shorten the story to avoid boring you (as well as myself), fast forward to 2013 and BTC goes from the lows of $100 to over $1,000 for the first time. BUBBLE ALERT! They scream.
Predictably, BTC loses upto 80% of it's value, this time over the course of two years. The bubble popped, Bitcoin is over they say, told you so etc etc. And so we get to 2017, what's changed? Not that much in comparison to previous years.
The days of a 900% increase in 5 days are over for Bitcoin, try altcoins for that ambitious margin. It's 2017 annual gain slightly outways the 900% gain in 2013 (bubble alert!) but doesn't come close to the gains in 2011. Summary: It's still going up.
The irony of this story is that, like all other stories about Bitcoin bubbles, I selected the facts to suit the story I wanted to tell. Did you even notice?
Bitcoin didn't start at $0.003, it started at 0. The first Bitcoin auction of 10,000 BTC for $50 didn't sell, $0.003 was merely the first recorded price, hence it didn't have a value prior to this as the auction proves. This means that Bitcoin's increase since it's usage is not 666 million %, it's in fact infinite and has been since it's first price of $0.003.
This isn't an argument for Bitcoin's price reaching an infinite value, which I don't believe in, but here I'm purely stating the mathematically obvious. Any value that goes from 0 to X has an infinite value increase, as the value isn't measurable.
Yes Bitcoin could be in a 7-year bubble. Yes Bitcoin could be in it's third or fourth bubble.
Yes Bitcoin isn't in a bubble, it could even correct 90% and it still wouldn't be a bubble.
Yes Bitcoin can't be in a bubble because it's growth has remained stable at an infinite value from 0 to X.
So, if you're still reading, what did you learn about Bitcoin bubbles? Hopefully nothing, because the media won't tell you anything interesting, and my ending summary isn't intended to offer any insight either.
Yes I need sleep, I know. I leave you with my final analysis of the picture below:
Bubbles can be multi-layered
They can co-exist side by side
They can even exist one inside another
No-one knows how long a bubble will last
Proof of a bubble is when they pop
@dragoncrypto what i think its not a bubble and soon it will be mass adopted.
Follow me @zahidzzs
I agree, my point centers around the idea that analyzing Bitcoin as bubble isn't actually useful ;)
Great article. It depends how you frame it, which I think you eloquently put. However, bubbles are all about hype and making headlines, so the term becomes meaningless as BTC does whatever it wants, right? Traction among asset classes gains as more people begin to trade it, thus a framework is formed around the underlying to determine its value. BTC, unknown at $.06, is now $14680 on /XBTF8 on light volume as I write this. Light volume means that there aren't a lot of people exchanging contracts, which inhibits a meaningful marketplace and price discovery due to liquidity problems. As such, we don't know what the price should be, only what it is today placed in a developing framework that will bear out in the coming months and potentially years. The point is this. Price comparisons do not themselves indicate bubbles. Relative value indicates value and until recently there was nothing to compare BTC against except USD and alts because it wasn't getting traded against anything. Time will tell if it's in a bubble or not, but I think there's a few things that'll have to come to pass first. I just wrote an article on this if you want to check it out. Again great article! Thanks for sharing! Love your posts.
Thanks, read and upvoted your article! I completely agree that "Price comparisons do not themselves indicate bubbles.", this is a strong underlying argument. People could easily argue that the inflation of the US dollar, as well as other fiat currencies are bubbles, but this isn't a widely accepted argument because priced against other fiat currencies their values are relatively stable. Something will "pop", at least temporarily, whether that's fiat or cryptocurrencies, or both, is yet to be determined.