Is Bitcoin a bubble that will explode?
Almost one day does not pass without an in January influential person coming out against Bitcoin, describing the success of the coin as a bubble. Bubbles in the developing world of distributed currencies are not missing, but I think Bitcoin was not included.
Before we dive into Bitcoin's story, it is important to distinguish between bubble and speculation. Every investment has speculation. The speculative aspect of the investment is the percentage of the price of the asset that is based on future expectations around the property versus the value that the asset affords today. It is said that the value that the asset actually generates in the next 12 months versus the value it is expected to produce in the future. In this sense, in all our investments there is some speculation. In an early stage investment, the same speculation is much higher because most of the companies we invest in have not yet generated real value (at least not in the form of profits), and all their prices are derived from their future expectations.
Speculation plays an important role in the world of venture capital, and in innovation in general, because it produces greed, which in turn stimulates entrepreneurs and investors to play a role: to start a start-up or invest in one - making at least some of those dreams - about 3%. The ecological start-up system that has developed around the world and is responsible for building Facebook, Uber, Snapchat and WeWork leaks, which has led to investments of billions of dollars every year, is built on the same idea.
When does a bubble become a bubble? When the price of an asset has nothing to do with rational elements around the potential future value of the asset. Take, for example, a $ 1 billion market, and assume there is no annual growth. A startup is planning to capture 10% of this market over the next decade, but at the moment, StartUp has a team and proof of concept only. There are already a number of established players in the market, each valued at $ 50-100 million. Assuming our start-up has a strong value proposition and positive signs from the market, you can see how the start-up will be valued at $ 5-10 million. However, if I were to say that the company is currently valued at $ 200 million, it could indicate that the asset is in a bubble, because the volume and adoption that this company will need to achieve in order to justify such valuation (in terms of present value) are larger than the imagination and not achievable Market size, industry structure and valuation.
If we continue with the same example, we can see how many distributed currencies currently in use have valuations inflated. Some even have a market value of hundreds of millions of dollars, while some of their initiatives have yet to prove their worth by product or adoption. Even some of the most successful parallels in the real world, and only in rare cases, come in as spectacular valuations as we can see in the world of decentralized currencies, indicating that some of these property prices are not related to their market opportunities. Therefore, it is the role of the investor to ask the right questions and analyze each property in depth, ignore the noise and separate the bubbles from the real opportunities for wealth creation. Also, many of these coins are part of this bubble, but I believe that Bitcoin is not one of them. While the price has risen relatively rapidly in the past year, it has done so on the tails of some of the following elements:
The most important feature of money, which makes it real, is that people will believe it and want it. There is real benefit here because people are actively using it to store value and pay for products. It is only to look at the massive manner in which Japan has adopted the Bitcoin and the suggestions that several large Japanese banks will start trading in Bitcoin as a currency, like Lynn, Dollar and Euro. Moreover, in the long run, the complexity of buying Bitcoin will decline and lead to a positive effect on adoption.
Bitcoin's supply is limited. There is a real community of people who are fed up with seeing their wealth controlled by centralized governments that dissolve their citizens by diluting their value by printing money at their discretion. This trend comes as good news for Bitcoin, and the fact that the supply of the currency is limited makes Bitcoin an efficient and attractive warehouse.
The market for "preserving value" is enormous. You can easily see how, if the adoption of Bitcoin progresses and the supply is limited, the value of the network can reach trillions. To illustrate this, the gold market, which is used mainly for the purpose of preserving value, stands at about 7.8 trillion US dollars. Even if 5% of this amount goes to Bitcoin, the effect on the price of the Bitcoin will be huge. We firmly believe that as the investment in Bitcoin becomes easier through a better user experience and better financial products such as ETFs, many more investors will adopt the currency.
The argument that Shtekwin is not a good way to maintain value because his volatility is not strong enough. I can understand why a volatile currency creates problems, and I can also understand why volatility here is a disadvantage; But if something is rare and its adoption grows, it can maintain value effectively if the investment range is long, as was the case with Bitcoin hodlers, those people who hold Bitcoin only for investment. Moreover, as the value of the network grows, volatility will naturally decrease. However, we do not see the volatility falling to levels of traditional and stable currencies. Certain price fluctuations will always be due to the fact that fixed supply meets variable demand. Activities in the global economy and shocks in the demand for plywood can always cause significant volatility (similar to that of gold).
When we use the "quantity theory of money" as a model for the price of the betcoin, the value of the bitcoin is justified. In our calculations, we did not include 1) coins lost due to loss of private keys or voluntary destruction, and 2) held coins. We acted in this way because in any given year, those coins are not in circulation and therefore are not available to the decentralized currency community. According to a study conducted by ARK Investment Management LLC in collaboration with Coinbase, between 2012 and 2016, an average of 54% of the users of Coinbase owned or bought Bitcoin only during the year, and viewed the distributed currency solely as an investment. In addition, as long as 2014, John W. Ratcliffe concluded that about 30% of the existing Bitcoin coins were lost, equivalent to about 25% of the current currencies. If we tie everything together, we will conclude that about 80% of the Bitcoin coins issued are "inactive". Given the average daily volume of transactions of about $ 1 billion, the price of the betcoin today can therefore be justified even when we do not take into account reduced future expectations.
Although the Bitcoin is not a bubble, it does not mean there is no risk. For example, regulatory uncertainty around the world could destroy value for many investors, especially if their time horizon is short. Another major risk is the distribution of Bitcoin. Most of the coins are held by a number of people, "Bitcoin Whales" (about 3% of the existing Bitcoin addresses hold about 97% of all Bitcoin coins in the market). So, as an investor, you should be aware that a small number of people can manipulate the market. This could lead to an event called "Killing a White Whale" in the Beaten scene. For example, on October 6, 2014, someone sent 26,000 Bitcoins to Bitstamp to sell.
In the long run, the price of Bitcoin depends on the number of new users joining the community, whether to use it as a way to maintain their value or as an exchange. It is very important to understand that today there are only a few people who hold Bitcoin (world class). In fact, only about 3.1 million wallets currently hold Bitcoin worth more than $ 100, and only about 1.2 million purses hold more than $ 1,000 worth of Bitcoin. While on January 1, 2017 (see attached graph), there were only 11 million Bollachian wallets, currently 17.1 million (+ 55.5% YTD, YTD). We expect the adoption trend to continue to show exponential growth.
In conclusion, on the basis of the analysis, not only is Beetkinin not a bubble, but in fact it has been underestimated in many respects. Not only on the basis of future speculative value but on the basis of the actual value of utility that can be justified today. Therefore, it is possible today to exploit the prevailing skepticism to buy Bitcoin at a good price.
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