Andreas Antonopoulos Warns of Bitcoin Bubble - IS IT?
What a rare statement from a dubbed genius of bitcoin, we always hear that from members of central bank. But now even the brightest mind in bitcoin is expressing his fear over the parabolic growth of bitcoin price. Australian financial review quoted him :
"What we're seeing is a straightforward grassroots bubble driven by speculation and greed," said Andreas M. Antonopoulos, author of Mastering Bitcoin and The Internet of Money, on Friday afternoon.
"Given so many new participants know very little about the technology, that's even more dangerous as they are taking on a serious amount of risk.
"And as such, the added congestion means bitcoin is not currently functioning as originally designed."
Andreas Antonopolous has been promoting the utility and technology behind bitcoin, way back when the coin was worth like 13$. He advocated how cryptocurrency will disrupt the monopoly of central bank in our presence currency. So now what he's saying seems to contradict to what he tried to promote all this long. What changes?
WHAT IS A BUBBLE?
Quoted from reputable educational source, INVESTOPEDIA :
A bubble is an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.
In simplest term, a bubble is an overheated market where there is too many buyers but less in supply. As a result, buyers are bidding higher and higher in price, up to a certain point that is no longer sustainable. People start to realise this, and start to sell. Snowball effect rolls in, and more and more people panic sold. Just as quickly as people buying up, the price went down on the same pace. The last "idiot" to buy in will suffer the most losses.
But... this is all inevitable, it seems every great invention in history have to go through this phase
Fred Wilson, founder of Union Square ventures said:
Bubble shouldn't be something to be fearful of, bubble took human kind to unbelievable heights. Let us take the example of railway mania happened in UK during 1940.
Events leading up to Railway Mania
- In 1940, Industrial Revolution was well underway, people are seeking for a more efficient way of transporting large quantities of raw materials to be distribute throughout the country.
- George and Robert Stephenson built the first steam-powered railroad and proved to be far more efficient.
- In mid-1840, the railway companies become so aggressive with their promotion even claiming a risk-free investment. They even went as far as allowing investor to purchase 10% of a share, while the remaining 90% can be paid later. This if further fueled by government practicing laissez-faire approach toward the regulation of railroad development.
- The rise of railroad share price leads to speculative mania, and false promise on building railway in the most impossible place.
- The crash started when Bank of England raised the interest rate and the rise of realization that many railroads are not as profitable as they claim to be.
Sources : http://www.thebubblebubble.com/railway-mania/
Most of the bubbles left us with little value in its aftermath. But railway bubble leaves us a spur in development of railway system. This resulted in a widespread coverage of railway system as we can see today. Without the mania, we might not have a complete transport system.
So why a new technology always go through a bubble?
This is because it is hard to identify the true intrinsic value of the product using traditional valuation. New technology only generates cashflow when it's very far in the future. This can be projected to all the ICOs out there and all the mushrooming coins. They promise a great idea to solve certain problem using blockchain. It looks implementable and revolutionary on paper, but will it pass the test of time? It's really hard to know until a particular coin is widely used and generate cashflow. This usually take a long time to realise.
Without knowing the true intrinsic value, people can only speculate and make their own "rational deductions" based on hype and FOMO. Thus, whenever there's a news bout latest partnership or new adoption by another platform become a point of reference for a price spike. This news of price increased lead to sucess stories of early investors stir envy among others. Which further attract more people to invest and fueling the price to unseen-able heights.
How does hodling through DOT COM bubble feels like?
Let us take the most recent bubble happened in 2012, The "DOT-COM" bubble and put it in perspective.
For those of you don't really know what is DOT-COM bubble, let me explain :
As the name implies, this is a tech bubble that resulted the internet we see today. Popular site that we see today like Amazon and ebay are the survivors of dot com crash.
DOT COM BUBBLE TIMELINE :
- It all started in 1990, US computer industry start to focus more on software development instead of hardware in PC. As software requires lesser incentives and promise bigger profit margin.
- Software companies become the strongest performer throughout 1990s. Enthusiast of software business created many startup company, mainly launched from garage.
- Venture capitalist financed startups and make them public in hope for tremendous profit.
- Internet introduced to the platform around mid 1990s, internet become increasingly commercialized, many online businesses grew with tremendous rate.
- Many founder of tech companies and even employee become millionaire overnight when they IPOd their company.
- Speculators, the so dubbed investor invested in all kind of online company that seems "promising" regardless of the fact that it is run by people who barely out of college.
- Many of the companies had no earnings and no clear business plan which lead to the crash in year 2000.
Sources : http://www.thebubblebubble.com/dot-com-bubble/
If you bought in around 46$ worth of MICROSOFT stock in 2000 (which is NEAR the peak of dot com bubble), you'll only break even or get back your money after 14 years around end of 2014!
!
If you bought 56$ worth of INTEL stock in year 2000, you are still waiting for break even! Intel peak worth was around 75$ per share, but the current price of 44.56$ per stock is barely 60% of peak bubble valuation.
Adobe took merely seven till eight years to break even if you bought at the peak!
Amazon took the same time as Adobe too!
CONCLUSION
If you bought at the wrong time, you might end up waiting for 7 years or more to get your money back! This article is not meant to spread FUD in any case!! My article is served to be as a warning especially for those who bet heir life savings on cryptocurrency. It is always wise to keep some percentage of money on the sideline so that you can buy in later on if the bubble really do happen no matter how bullish you are with cryptos. Crypto market cap is approaching 1 trillion dollar, with its current state being over 500 billion dollar. And dot com bubble burst around 9.6 trillion dollars. With CME and CBOE joining the game, we already witness an over 200 billion dollar increase in a month! 8 trillion dollars is achievable within couple of years. I personally do hope crypto will maintain it's growth, but a pullback is inevitable for the long term sustainablity of cryptocurrency.
THANK YOU SO MUCH IF YOU FINISHED READING MY ARTICLE! PLEASE LET ME KNOW IF YOU LOVE MY CONTENT :
Every disruptive and revolutionary technology is difficult to evaluate.
Yes agreed! Time will tell the true value of that product. That's why it's always wise to invest not more than you can lose. When you invest in something, treat it as something you just lost. From there, you'll trade better and not get caught in FOMO
I just blued your article... I honestly think Andreas is right about a lot of things... and as much as I say bitcoin is here to stay it would be foolish to not be careful when jumping in, if you sell everything and buy bitcoin, quit your job, leave your wife, and it crashes... there is no one to blame but yourself.
Yeah it's always wise to treat it as bubble. Practice moderation in taking profit, don't be too greedy and miss the opportunity to exit a bullish market. YOu'll never know when you'll get caught in the bearish market. So invest due diligence and that I can't stress more of it. Thanks for reading!
Btw Felix, checkout my last resteem... written by @lexiconical a must read for you my friend...
Ahaha what a coincidence. LOLZ. Same topic about bubble too. I commented on it. Thanks!
A good read. Can we say the same thing for the current surge in the price of sbd? I'm eager to know
SBD is meant to be 1USD worth. When you write an article now, you will get much more value in SBD. It is not sustainable. It is just a speculation and artificial spike. Maybe a whale is just playing. I would rather buy STEEM for your SBD.
I read an article by @acidyo https://steemit.com/asksteemit/@acidyo/asksteemit-9-what-is-going-on-with-sbd-s He stated it's the latest addition of steem pairing with korean won. It's really hard to speculate if it will be sustainable or not. But there's a demand by the koreans. What I will do is sell those sbd while it is high to steem power. To increase your influence on your post and to others too.
There will be more and more SBD (inflation through writing and curatoring) until it recovers back to 1 dollar. When it is less than 1 dollar, people Convert it to steem (not exchange) - that means create new STEEM and destroy some SBD. The converting counts with the fact that sbd is worth 1 usd. Thats why it is not sustainable. And within few weeks (if nobody pumps it) it will be worth 1 usd again.
Lots of info lol, and the graphs i always love to see graphs hahahah
I just hope crypto bubble doesnt burst and just keep going on lol ;]
That's how a scientific person thinks :P Graphs speak the truth you should learn it! haha
@originalworks
Thanks dude.
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I think it's hard to give a balanced criticism for crypto for a lot of its problems because it's just doing what any profitable assets do, generating hype in its ability to make money in order to make money....and some of that is founded in reality for sure, I don't think Dan Larimer is messing around after being on steemit for 6 months and seeing what it can potentially bring to society. The reason crypto is a bubble isn't because the "value" isn't there, it's because it's convoluted and impossible to gauge from coincapmarket or other rankings, yo ursally need to do your research and most people don't. But I guess that is quite similar to the internet bubble. In any case, I think we have a while before this bursts and steem will be a good place to be when it does.
Yeah I never doubt the value of crypto. It will be highly unwise to do that. But if you read my article thoroughly, you should know I'm pointing out that every great tech comes with a bubble. BUbble is a must go through phase no matter how life changing or how revolutionized your product is. It's proven by history. And I'm just showing that correlation and up to you guys to judge if crypto is in bubble. For me personally, I like to treat it as bubble, so I can train myself to limit the capital invested in it. Precaution is always a good thing to have.
I didn't see the bubble until I started to understand the problems of scalability (which I still don't REALLY understand) and the crazy fees on BitcoinI hope for the prosperity to be able to limit the capital I invest in it :-) all I got is a few steem, but hopefully that will change thanks to my steem.
I can see it now though, thanks.
IMHO, that is not a reason for bubble.. well you have lots to catch up i think. Those are technical issues which can be fixed by programmers but most of them didn't agree of the plan to scale it up. Even Satoshi himself predicted this will happen and scalability will be inevitable. But he forgot about miners' greed. Well you can read more about that here. https://medium.com/@jimmysong/why-bitcoin-will-get-scaling-without-segwit-or-large-blocks-772799fab021 I suggest you follow him. He is one of the bitcoin dev. You'll know more about bitcoin if you're into that.
Yeah, I can easily understand how people react to certain situations that unfold, it is sometimes difficult to understand how the situations will unfold if you don't understand some aspects of the technology. So the reason fees haven't gone down is miners greed? I will go read the article.
Very well researched article. I like your graphs showing the prices of stocks before, during and after the stockmarket crash.
Like any purchase in life, go for quality and don't try and cut corners. It will end in tears if you're motivated by greed and don't know what you're buying.
Yes exactly! I appreciate readers like you! But this article is past 7 days. So upvote won't do any contribution. Yes do realise if you buy at the top of the crash, you have to take that much of a period just to get your money back. Scary isn't it? I still believe crypto is generally in a bubble, history never lies. Human will keep repeating the same error. That's why I stop investing in crypto and let crypto earns itself. It's a better strategy i think.
I didn't realise about the 7 day rule. Still learning
In regards to crypto, it currently represents less than 1% of total US money supply, so quite a long way to go before this bubble reaches mania phase.
I will do a post on it soon.
Yes I agree its still a long way to go. But crypto was booming like crazy at that time reaching 800 billion USD in one month. I was thinking to myself this is too fast, it's going to burst and look now it went down as low as 300 billion usd. These corrections are healthy to crypto revealing its true value. And you have to be specific which total US money supply you're refering to. There's M1, M2, M3 and M4. I hope all these correction will form a strong foundation for cryptocurrencies to stay with humanity.
I agree. If the market only moves in one direction, it will make the corrections more severe. I am tax advisor, not an economist. But I think I was talking about M3 money supply, but didn't want to get technical.
This is a great website for seeing how big the financial markets are and the theoretical limit for cryptocurrency. Smart contracts could replace derivatives
http://www.visualcapitalist.com/worlds-money-markets-one-visualization-2017/
Let me know what you think
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