Cryptocurrencies: Do Not Think Billions, Think Trillions!!!!
I get it, Bitcoin is in a "bubble". We are reliving 2000-2001 all over again with the Internet. Cryptocrurencies have been hyped to the moon and it is time for them to crash.
Obviously, I write this in jest. None of it is true. We are no where near bubble proportions nor will we see a crash. That said, yes there can be a pullback, even a major one. Cryptocurrencies are volatile meaning that a 20% shave is nothing in this market. However, we should not mistake a pullback for a crash. A crash in the cryptocurrency world is 80% or more (steem going to 6 cents?).
@zer0hedge put up a post about how much money is out there in the world. The nature of this article used not only Fed issued fiat but also gold, silver, and derivatives. The total amount of "money" was in the hundreds of trillions.
You can find the article:
https://steemit.com/collapse/@zer0hedge/all-of-the-world-s-money-and-markets-in-one-visualization
The world is going digital. This should come as no surprise to people. Today, we see hundred of billions of dollars worth of commerce conducted online. This is a remarkable transformation over the past 20 years. Amazon is the poster child for this complete decimating the retail industry (in the US at least).
Over the next 5-10 years, we will see this number move from hundreds of billions into tens of trillions of dollars. At present the world has a GDP of roughly $80T with 40% of the population not involved in the worldwide economy. This is changing with the advent of the smartphone. Third world nations are coming online at record rates with more 500M people added in the last 18 months alone. We are going to easily see a worldwide GDP (I know a passe stat but it is all we have at the moment) surpassing $120T.
Tokens are going to be one of the biggest drivers of that increase. When you are operating in a digital world, you are going to use digital "money". Terms such as "wealth" and "value" are derived from different sources. Even today, we see a company like Facebook with no plants, very little equipment, and no tooling. Nevertheless, they are quickly separating themselves from a traditional company like GE which has a ton of manufacturing facilities, a basis for wealth in the 20th century.
This shift is going to cause the cryptocurrency market to explode. Ultimately, the tens of trillions in digital transactions are going to take place in cryptocurrency. I believe fiat will still exist and has its place. However, when dealing with goods and services outside a particular physical, geographic realm, fiat will not be the currency of choice. Tokens will be the go to option.
Cryptocurrency has the ability to make millions of people very wealthy. With so much appreciation in prices expected, it is easy to see that by having a few different currencies, take off is possible. While many will be skeptical of this idea, keep in mind that, at the moment, about 21% of the world's population lives in poverty as defined by the WHO. This means they are living on less than a dollar or two a day. Having access to the Internet will lift these people up very quickly. In other words, they become producers and consumers. So let me ask you, do you think someone in SE Asia or sub-sahara Africa will use US dollars? Of course not. Their commerce will all be in cryptocurrencies.
Take a look at this statistics:
http://www.internetlivestats.com/internet-users/
So you tell me how something can be in a bubble and not have a huge upside when almost half the world's population does not even have an Internet connection. Do you see potential when another 3 billion users are online?
Remember, in the digital world, it is crypto that will be used....not fiat.
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Thank you for the insight. However, it can have fantastic long-term potential and still be in a bubble. Look at the stock price of Amazon in 1997. Then compare 2002, and then look at now.
Bubble doesn't mean that the current valuation is out of line with the long-term potential, it means that it's out of line with the intermediate term potential.
In finance there is a concept called 'Time Value of Money'. Everyone has an intuitive understanding of this. You would rather have one dollar now than the same dollar one year from now. For one year from now to be better, you need some increased amount (interest or rate of return) to choose receiving it one year from now instead.
For terms of valuation, you decide the appropriate rate of return, and then discount forward expected return to find out the current valuation.
With any expected return greater than 10-15% (I think our expected return for bitcoin is much higher than that, given that it can fluctuate that much every few days this year), the present value of future expectations past 10-15 years starts to approach zero. In effect current valuations are usually driven by expectations in the next 10 years, for all but the most stable of companies. When this time horizon is pushed out (how many years to reach 100% ROI?) too far, that is when it starts looking like a bubble.
So what is your time horizon for bitcoin to be worth trillions? Now if you don't really know because you can't see a clear path between here and there, that's okay but it implies bubble valuation at present until the path becomes clear.
TLDR: it can have great long-term prospects and still be a bubble. I think it currently is.
(full disclosure: I'm invested in bitcoin, and I bought more yesterday.)
Thank you for your comment and you bring up good points.
However, let us look at the bubbles we witnessed.
The US housing market was in a bubble and collapsed to the tune of 30%-40% when no more than 10% correction was ever seen.
The equities market in the dotcom era were in a bubble and dropped 40%-50% when a correct of 10%-20% is the norm.
We know that Bitcoin has huge volatility. 20%-40% corrections are the norm....they can happen in a couple of days to weeks. We witnessed this throughout 2017.
So I ask you what kind of pullback is needed to be a bubble for bitcoin. Based upon the percentages, you would have to see 75%-90% to align with historical norms of other bubbles.
Do you see that as likely?
From the first time that bitcoin passed 1000, it crashed more than 80% and then took years before passing 1000 again after the crash.
I think that if bitcoin crashes more than 50% and then takes more than 2 years to recover to previous highs, we will know it was a bubble. (That's nowhere near impossible now that bitcoin is past 7000. I don't see a crash to below 2000 as anywhere near impossible. A crash below 3500 is quite possible... and that's if bitcoin doesn't keep running. If it hits 10000 this year (as so many think possible, and in a bubble, anything is possible, it would only need to crash to 5000...)
But remember, it's not the crash that confirms it was a bubble. As you correctly mentioned, we see 20-40% pullbacks frequently, and 20% in the stock market would make it a confirmed bear market.
It's the shattered confidence and the resulting lingering for years before passing previous highs that proves it was a bubble.
Since bitcoin's bubble is tied to the easy money that is blowing up bubbles across other markets, it could keep running until everything pops, and then it will probably be years before it recovers as there won't be ready VC money next time it pops.
Excellent comment and insight into this post
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This view fits right into an article I recently wrote. I wrote this which is targeted to people who feel it is too late to get in and participate in the exploding crypto/blockchain sector. https://steemit.com/cryptocurrency/@motowngold/bitoin-crosses-7000-dollars-what-can-you-do-about-it-some-investing-ideas-including-crypto-related-stocks
Thanks.Mostly agree and crazy to think how young all of this is....so much potential for it all!
great information. .
it's mean its must be risky if cryptocurrency can pull back ..
Interesting view you have bring with this article. Crypto will increase the standard of living of many people on the planet earth.
Wow that was a very interesting read. I hope all that you wrote there will come true as i am a firm believer in cryptocurrency and its positive effects in our society. This revolution to digital money is like the emancipation money from those so seek to control it and returning power to its rightful owner the people who use it.
Very insightful.... Bitcoin is a force. .....Answer to humanity
I really love this post, your enthusiasm for crypto - I have the same enthusiasm if not more... I am not an economics person at all - I versed in finance.
One piece I really wanted to add to this post and hopefully it will stir up some thought or ideas by economics people - is the fact that the "FED", "The United States Federal Reserve" has absolutely no government affiliation. It is it's own entity.
It is a very powerful entity because it controls the "fiat" supply and collects tax money to pay off borrowed interest debts by the U.S. govt
My question to all is how will the FED and fiat play out with the transformation of crypto?? Will it help crypto since the FED is not govt affiliated?? Or will it instead hurt crypto?? Please respond if you have any insight into this patadogm. Much love for the post!
You are correct...something that most miss. The FED is NOT the US Government.
We are dealing with bankers so I would guess that the FED is going to be against cryptos. It is a threat to their monopoly. What do they do about all the debt when they cant sell their bonds since the reserve currency is not as popular?
The central banks had a monopoly on the currencies of the world for a long time. Now we are seeing an alternative and they dont like it. Ultimately, they are going to do what they can do to try and stop it but will fail. A decentralized world is on its way due to technology. Even if the major corporations and governments resist, the fact that computer equipment is cheap enough for average people to get it means that worldwide networks form from those who against the control mechanisms. And that is exactly what we are seeing.
Well Said!! The FED, Banks, and Government are all on high alert in the background. I do believe you are right tho that crypto is an entity or organism that just cannot be stopped since it is self propelled now by tech.
Rise up Crypto