Is Bitcoin in a Bubble?
We are seeing the Bitcoin price exploding and concurrently it brings up some altcoins as well. It's easy to get blinded by the euphoria, but this is a psychological burden most of the time. If people want to make money longterm they need to stay rational, and can't let themselves be manipulated by the joy. The number one rule of investing is to stay rational and cold blooded. If you can't do that then you are as good as your average gambler.
Let me tell you my opinion about this recent Bitcoin price increase. Many people were asking in my last posts how I came to the conclusions that I did. I usually to the math in my head, I like to be 2-3 steps ahead of people, so my thoughts may be hard to follow but rest assured there is logic behind it.
So I'll break down my reasoning this time so that people can follow:
Clue 1: Parabolic Price
It's usually never a good idea to buy when the price is parabolic, this suggests irrational traders, and more rational ones (with big budget, since you can't get rich by being a fool) will not buy, therefore only the losers will buy at the peak and wonder why they are losing money if the market goes down.
You can only get rich if you are rational and disciplined, and rich rational guys will never buy at the top, only losers do, therefore it looks like the market is in for a crash.
Clue 2: Most volume is intra-exchange (IOU)
It looks like most of the trade volume is happening inside the exchange, so it's not even Bitcoins that are being traded but worthless IOU claims, which could disappear anytime some clever hacker hacks a major exchange.
So another MTGOX or hacker moment can easily bring down the entire house of cards. Especially now that military-grade malware is circulating on the internet and black markets:
- https://www.reddit.com/r/NSALeaks/comments/6alpw4/nyu_accidentally_exposed_military_codebreaking/
- https://www.reddit.com/r/NSALeaks/comments/6at66w/an_nsaderived_ransomware_worm_is_shutting_down/
So it's just a question of time until some clever hacker finds a vulnerability and loots all the exchanges where idiots are trading air, IOU.
It is not a Bitcoin if the transaction doesn't happen on the blockchain, and it can't happen in the blockchain because the transaction fees are high, and the transaction capacity is way too low:
The 1 MB block is literally a disability to Bitcoin but somehow the smart "Core Developers" , "Core" as in they are the center of a supposedly decentralized community as just unwilling to increase the blocksize:
- https://www.reddit.com/r/btc/comments/6fmsjy/one_of_the_biggest_lie_from_one_of_the_biggest/
- https://www.reddit.com/r/btc/comments/6flr3w/yesterday_i_realized_why_segwit_fanboyz_cant/
Conclusion
Bitcoin is in a bubble, there should be no doubt about it. And as every bubble, it will pop eventually, and a lot of people could lose money. I think Bitcoin can pop anytime, because the traders are detached from reality.
As I illustrated in my previous post, the guys on /r/Bitcoin subreddit are celebrating Bitcoin's price, while the guys on the /r/BTC are actually pointing out the longterm problems. It's a total detachment from reality. And many people will lose money.
Fortunately, I think a lot of money will go into the altcoins, especially Dash, Monero and Ethereum, and big ROI profits into smaller altcoins. Just follow my #becomingrich series and see for yourself what I think about altcoins.
Disclaimer: The information provided on this page might be incorrect. I am not responsible if you lose money using the information on this page! This is not an investment advice, just my opinion and analysis for educational or entertainment purposes.
Sources:
https://pixabay.com
https://blockchain.info
Everything is a bubble. There are both macro and micro bubbles with different cycles. This bubble will collapse - the rate of capital influx is way too high to be sustained at this point in time. We will reach trillion dollar and stable market caps - not this year.
Check out my old post on riding the Bitcoin bubbles for some interesting sentiment:
https://steemit.com/bitcoin/@kyle.anderson/what-it-is-like-riding-bitcoin-bubbles-an-adventure-through-the-present-cryptocurrency-explosion
I think Bitcoin is in a bubble indeed, but in the very beginning of a new bubble. The last bubble took months before it popped, and it shouldn't surprise me if this bubble will go on all the year of 2017 and rise to 8.000 - 10.000. The crash will be huge, but I think it will never come lower than it was before the bubble (1.200), because the fundamentals of bitcoin are very good. I think you can still buy BTC for the short term to ride the bubble or for the very long term till the next bubble (then you have to hold on for years). For medium term I should be careful now.
Great advise, what do you think about this assumption of bitcoin reaching $100000 in the next ten years?
I think that is a very very naive way to look at it. I admit even I was stupid enough to fall for it.
But now I really doubt Bitcoin will reach above 100 billion $, ever. The speculation is rampant and who knows how many Chinese people with savings (actually chinese have more savings than the west) will start gambling there. Also chinese are known very well for their gambling weakness (Macao, Hong-Kong casino fever).
So it's hard to predict how much higher the gambling will take Bitcoin, but I doubt it will be above 100 billion.
But I don't think Bitcoin will ever reach global adoption, there is just too many other good coins that will be fierce competitors, Bitcoin is a dying dinosaur, and once the gambling dries up, it will be like a dry leaf in autumn.
Those are some bold statements. I'm not going to try to convince anyone that what you're saying isn't possible, but, I can say that people who're finally starting to pick up on crypto around where I live are all talking about bitcoin (I noticed a few mentioning ether, as well).
One year ago, I never came across anyone who knew what the hell I was talking about when I'd mention something about crypto-currencies or bitcoin. Today, it seems like maybe 2 or 3 out of ten people have some idea of what bitcoin is and 1 out of 50 or 100 know that any alternatives exist.
That tells me bitcoin is the leader for mass adoption, but I realize that I'm gathering this info from a very small subset of the world population.
Bitcoin is unusuable in it's current form, it doesnt matter how many people know about it if they cant use it.
But their efforts can be used to help altcoins. Either they will be disappointed in bitcoin and leave or they will join altcoins.
Either way it's the altcoins that will benefit the most.
If it's unusable, then tell me why I use it so often and hundreds of thousands of other people use it daily.
Correct me if I'm wrong, is not segwit coming to bitcoin in August? Surely, lightning network will soon follow.
All these things that make bitcoin "unusable" will be solved before summer is over.
Couldn't agree more! I have pointed out some of the obvious problems, like scaling and how it will inevitably cause a market crash. My belief is though, that as Bitcoin collapses, other coins will rise. The ship has sailed on Crypto. It is here to stay!
Exactly, there is no commerce in Bitcoin, the merchants are disabled with the high fees.
All the action happens inside the exchanges, where kids are gambling with allowance money. This is casino behavior, and has no fundamentals.
The economy is not growing the the speculation is, this is the definition of a bubble.
SOUND TRUE
That was a really good read. You make good arguments....and I really like where you're drawing your conclusions from. Top notch.
I agree with you about the parabolic nature and that it is silly to buy in now (in the long term anyways...short term profits are always available!).
I personally don't have a solid stance on whether this is a "bubble". In my mind, I don't see a bubble happening because of the irrational behavior of people...prices are never "rational" in this context, as they are always oscillating around a true, but subjective mean.
I totally agree that a downturn is inevitable though. The market is simply becoming bloated with resting sell-side stop orders, as well as a lineup of short-sellers.
THIS, is why I don't feel it is necessarily a bubble, but the beginning of a very high variance period. Great for traders, bad for investors. Massive swings and irrational decisions!
...in other words, chum in the water!
Great post by you!
nom nom nom
Up-voted not necessarily because I agree BTC is in a bubble, but for the commentary this post is generating and for you doing a good job at staking out your position.
However, I agree with the Bix Weir, Clif High, jsnip4 camp that we're not anywhere near being in a bubble.
Once major countries figure out that they should be accumulating BTC and with the billions of humans yet to get a mobile phone.
Fidelity is apparently hot on Bitcoin and according to Clif High, sme major insurance companies are building out cold storage solutions.
And, eventually, the technology will move away from centralized to de-centralized exchanges that will be in every Walmart, CVS, Subway, etc.
I think we are a long way from a bubble in Bitcoin and any of the crypto currencies and Clif High thinks so to.
Interesting video I don't have time to watch it all but looking at it briefly the older guy talks about Steemit how Steem doesn't have an intrinsic value, a cashflow into it.
And I agree there, I also think that Steem at the moment is not in equilibrium, however I think a Social Media has intrinsic value and once some kind of commerce will be based on Steem, then that issue will be solved.
So this is not an issue, Steemit is still in growth phase and we already see many great services coming out being built on Steem, so the value of Steem is potentially still undervalued, relative to Bitcoin, not necessarily to the USD.
So while Steem can have a future growing economy, through the network effect, Bitcoin won't because bitcoin is disabled through the 1 MB block cap.
take your time to watch his vids, he talks in range of years and it has value. It takes kind of patience to filter what you are looking for, because he is interested in everything including aliens. For now Steem is still an asset of Steemit and not currency at all. Anyway I see that as big value, when pro advertisers starts to invest in it. For currency and store of value - it's not about rationality so much, rather about crowd move and technology of particular blockchain adapts later.
Bitcoin,as long as I've known it,has been prone to bubbling. it shoots high,then settles down. the real value for me is that it comes back strong eventually; but that could always change. I'm no pro trader but I think it is interesting to see the development of the currency and how it's treated.
Bitcoin can only grow if it has commercial support. Which is crippled now with the 1MB block limit. Until this issue is fixed Bitcoin can't grow. Only the irrational speculation will grow, and that can just as well crash.
Economic growth is usually linear. It's the perception of the irrational traders that make these parabolic prices.
that to me has been disappointing, especially with the growing use it's becoming a major strain. from what I read there's some dev politics going on that's holding it at that level? it seems to attract drama
This post has been ranked within the top 80 most undervalued posts in the first half of Jun 07. We estimate that this post is undervalued by $17.66 as compared to a scenario in which every voter had an equal say.
See the full rankings and details in The Daily Tribune: Jun 07 - Part I. You can also read about some of our methodology, data analysis and technical details in our initial post.
If you are the author and would prefer not to receive these comments, simply reply "Stop" to this comment.