#1 – Bitcoin And The Cryptocurrency Market Is A Bubble Waiting To Burst
This post is part of a larger series of post titled
I want to reward those that made it through my Top 10 list (and actually read all nine (9) of my ramblings) with a final piece that finally answers the “are we in a bubble or not?” question. I want to be a hero and finally put to bed this reoccurring question with a strong and insightful argument that left little doubt to the “right” answer. Ironically ,the only “without a doubt” I’m left with is my self-confirmation that I’m not a expert and ill equipped to make a strong case at this point.
So please, cut me some slack on this one and remember that my goal of this Top 10 list is not to be right or wrong. My goal was to start several (10 to be precise) discussions about what I’ve heard and read over the past year.
Now that is out of the way lets get back to the question at hand….
Just as Bitcoin’s price increases, so does the number of shade throwers that like come out of the woodwork to use this argument when the entire market capitalization (MC) also increases. As if logic dictates that Bitcoin and other CCs are all overvalued, therefore the MC appreciation also increases the likelihood that the market will tank. In their minds, it’s not an “if”, it’s a “when.” Or logically, if it is a bubble then all the other criticisms must be true because a bubble means it’s an area that we really shouldn’t be in.
I’m not a mind reader but if I could peer into the minds of people that like to ask this question I would probably see that they are waiting for an epic pullback of biblical proportions. As if a massive pullback (even if it doesn’t mean the death of CCs) will be enough vindication for everything else they have been saying. It’s not a bad strategy. The CC MC will likely fall hard at least once in the future.
At the start, I thought I had a solid argument, but as I dug deeper I quickly figured out that out the answer is unclear and by the end I felt like my reasons were running around in circles that made my head spin faster than the exorcist.
First, no one really knows if the what the price of Bitcion should be and if you read #2 on my list you know how I feel about the question.
It’s easier to make a justification why Amazon stock isn’t worth $2000 a share right now because the price is tied to the company’s financial data and outlook. It’s much more difficult to build a justification that Bitcoin should really be at 1K instead of 6K, for example. The price of Bitcoin is simply a true market price for what a person is willing to pay for the use of it.
Secondly, I take the same perspective that Tezos co-founder Kathleen Breitman took when she recently said in a Wall Street Journal a recent article titled “Disagreement Emerges on How to View Initial Coin Offerings” that coins/tokens shouldn’t be viewed as an investment and then goes on to say ICO coins/tokens are more similar to a contribution of donation to a nonprofit network, with it being more like a souvenir than a stock certificate.
CCs are not exactly the same as traditional stocks. Stock prices are built around financial data that the company is legally required to supply to their shareholders. Traders/investors are merely choosing to assess whether the current price of a stock is worth overpaying for future growth is undervalued.
On the other hand, CCs are more akin to native economies. The MC for a CC is not tied to the financial health of a company. The price of a CC is a true, real-time, market price indicator of the amount of money that everyone has put in regardless of their reasons. Is it possible that a CC company is unprofitable but their coin/token is highly valued and sought after? Yes!
Don’t forget that CCs have utility. They are utility tokens that are required to power a service.
Finally, the answer to the bubble question is only evident when and if there is a massive pullback. Which makes me think should the question be tweaked to ask the following:
“Is the cryptocurrency market in a bubble that is about to pop?”
With that, at least people can say we are in a bubble or not while putting some meaning to it.
For the record, I think the crypto market is a bubble (duh) but I don’t think its anywhere close to popping anytime soon (something external such as an economic downturn doesn’t count).
Whether it can be compared to the internet bubble is more than I care to try to chew off at this point.
So I’ll leave you with a funny quote from a recent bubble article:
“Famously, Nout Wellink, former president of the Dutch Central Bank, said of bitcoin, "This is worse than the tulip mania…At least then you got a tulip [at the end], now you get nothing.”
Everything clear now? Feel better? No? I gave you fair warning 😊
Traversing the Cryptosphere,
Kryptonaut
I got through your top #10 and it was super interesting. Thank you, you made a great hard work there !
I'm glad you enjoyed my posts. Thanks for the kind words!
People are caught up in it. I have been in Bitcoin, but I sold out at the last ATH because I feel that it will end in tears. I mean, what does it do? It's elitist. It's like chasing the rainbow. At the moment, people are chasing it. They believe in it. Upvoted, following and resteemed.
Hi Katy - Re: what does it do? Right now think its sort of the fuel that runs the market. There are better coins on the market, but none of them dominate the trading pairs. At least in the foreseeable I don't see that changing. If it does, then yes Bitcoin will lose its luster - and utility. Thanks for the comment.
Hi Kryptonaut, Yes, I agree it is driving the market. I have no regrets about selling my BTC. I have captured more profits outside of BTC. But when I held it, I was acutely aware that it didn't have much function besides as the most common pair for trading and a store of value after profit-taking. I prefer to own a coin that has more functionality or ease of use and requires less electricity to mine. I appreciated your post and thank you for your reply. :) Namaste and Happy Steeming.