Bitcoin is not a Bubble and here is Why

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What's going on: When you look at the history of speculative bubbles since the 16th century, they are more or less always the same. But I think you have to divide between "bad" and "good" or let's say "legitimate" bubbles. A bad bubble happened in 1673 during the Dutch Tulip Mania. I call it bad because it had nothing to do with a technological shift, the assets were Tulip bulbs that could be easily faked, that could rot and had only a speculative value (though this is not a bad thing).

"Good" bubbles occur in times with big technological advancements. Examples are the Railway Mania in the 1840s or the Dot-com bubble from 1995 to 2000. People lost a lot of money during these bubbles, but the technology behind them (trains and the internet) were revolutionary. Sure, they attracted a lot of gold diggers (or scammers, to use more up to date terms) but in the end the technology was here to stay. Though it was risky as hell and ruined people financially, companies like Google or Amazon were already around when the dot-com bubble burst.

Why should I care: Bitcoin has already seen a couple of bubbles in the last 9 years. Prices went down, but then recovered eventually. So even if today's price of around 8.000 US-Dollar represents a bubble, who really cares if the price will be back up and higher in the months to come? And even if Bitcoin's killer-app isn't payment (that could change through updates to come) it is already digital (and better) gold.

There is still not that much money in cryptocurrencies compared with gold, and absolutely nothing compared to conventional asset classes like stocks and bonds. This doesn't mean Bitcoin is a safe bet and one should put all his money in. Like gold (most) cryptocurrencies don't pay any dividends, that's why in the long run they under-perform stocks and bonds.

Bitcoin may at the moment not be very useful beyond being a way to store value, but the same is true of gold—and gold has stayed valuable for thousands of years now.

Source: arstechnica.com
GIF: giphy.com

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