Are we in a bubble? Is it going to pop?

I hear these questions a lot, when I read through articles or chats about the crypto-space. In this article I want to share some of my thoughts concerning the issue.

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Over 10x in the last 10 months - compared to FIAT

2017 has been a really good year for crypto currencies. I remember writing my Bachelor's Thesis on the Adaption and Application of Blockchain Technologies in Q1 of 2017 and the overall market cap was under 20 billion dollar. At Anarchapulco 2017, I listened to Tone Vays talk about the technical analysis. Tone predicted a price of 5000$ by the end of 2017 - he wasn't wrong. Only did the price of Bitcoin not stop at $5k.

Bitcoin smashed through All Time High (ATH) after All Time High. Cracking $9000 with ease ("ITS OVER 9000!!") and, at the time of writing, settling around $16k. Damn. That's about 16x!

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Alts and the market

But not only Bitcoin rose. The market cap is now (14. December 2017) above $500 billion. Yes, with a B.

Looking back, it really would not have mattered, which $crypto I bought in Q1 of 2017 - everything has gone up ... in comparison to FIAT - compared to Bitcoin, most $cryptos have even lost in value.

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I am not a big fan of government monopolies. You might have figured something like that from my earlier posts. The monopoly on "legal tender" is one of the most destructive ones in my opinion.
Fiat currency - that's the enemy. Fiat means creating tokens (dollars, euro, etc.) out of thin air. Diluting the money supply, thereby lessening the value of any particular token. Central Banks endowed with the godlike power to "create value" - only its not creation of value, rather stealth theft.
When the word "dollar" originated it meant "1/20 ounce of gold" - today we are far from a dollar being worth anything like that (read more on this).

Now why do I mention any of this?

Because we are in a bubble!

Is the price of Bitcoin too high? I don't know. Maybe. But what I do know for sure, the price of FIAT is certainly too damn high! FIAT is in a bubble - a more devastating bubble that crypto could possibly be in. Many, many more lives depend on the integrity of FIAT; and exactly that integrity does not even exist: there is nothing backing the FIAT currencies - that is exactly what FIAT means! All that is holding the system together still, is the trust of the people in their paper money. This trust is an illusion. The vaults are empty. The fraud has been going on for decades - banks handing out credits, that they do not have in reserve (fractional reserve banking). The only hope is that there will not be a bank-run, which would prove to any bank customer, that they have been lied to and none of their money is there for them.

You have been cheated

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Bitcoin may fail. Fiat will fail. $crypto will succeed.

Yesterday, I watched an interview with Elon Musk, co-founder of PayPal, CEO of Tesla and SpaceX, where his talked about the early days of the internet and the starting of PayPal grasped my attention.

"Blockchain" is where "the Internet" was in the early 90s: The innovation is out of the bottle and will never go away again.

"Success is definitely in the envelope of possible outcomes!" - especially if compared to the rotten and corrupt current financial system. A crypto currency shall rise to replace the FIAT money system - time will tell, which $crypto it is.

Musk talked about the network-effect of existing customers generating at least 2 to 3 new customers. What then happens is rapid growth, comparable to bacteria growth in a petrie dish. In the last month, we have seen an immense growth in first Bitcoin and then also other $cryptos. Might this be an indication of such an effect? Coinbase has massive customer growth - this certainly seems to support this hypothesis. Bitcoin is in the news daily - almost anybody I talk to has at least heard of Bitcoin, although they may not see its value or legitimacy.

Critical mass

PayPal rewarded referrals initially with $20 then $10 then $5. Eventually, however, PayPal got to a point of critical mass, where so many people were participating in the network already that this fact itself generated value. They did not have to pay their customers for referrals - new customers came on board automatically, because it was a benefit to them - it opened the door to a new payment channel.

Bitcoin and other crypto are very similar. I think that what happened to PayPal will happen to Bitcoin - if it hasn't already on a smaller scale. Once Bitcoin becomes usable for everyday purposes (marginal transaction costs at scale) with the application of, for example, the Lightning Network, the technical lever will be in place to reach such critical mass.
Just imagine a world in which every big player in commerce accepts crypto - and it is easy and convenient, too! Buy something directly off Amazon? Bitcoin. Pay at Walmart? Bitcoin.
In such a world the network itself will have immense value and the price of a particular Bitcoin will be sky-high (moon).

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Conclusion

Bitcoin is in the news and a lot of new money is entering the market. Whether this growth can be maintained in the mid-term is unclear. What is clear, to myself anyway, is that the current financial system is in a much bigger bubble. Bitcoin will keep evolving and eventually solve the scaling issue, then the network will be ready for mass-adoption. Once this happens people will flock to it and businesses will offer it as a payment solution for customers. This will result in a network-effect, which boosts the value of the ecosystem even more. Fiat will be unable to keep up with the economic fundamentals, such as deflation through a capped money supply, and a decentralized and permissionless, censorship-resistant way for people to interact. Even if the price drops by 50% or more, 2017 symbolizes a year of increase in market awareness, technological advancements (activation of SegWit) and, of course, price.

HODL