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The Bitcoin Bubble (economist.com)
A reader shares an Economist article: More people will trade in Bitcoin and that means more demand, and thus the price should go up. But what is the appeal of Bitcoin? There are really three strands; the limited nature of supply; fears about the long-term value of fiat currencies in an era of quantitative easing; and the appeal of anonymity. The last factor makes Bitcoin appealing to criminals creating this ingenious valuation method for the currency of around $570. These three factors explain why there is some demand for Bitcoin but not the recent surge. The supply details have if anything deteriorated (rival cryptocurrencies are emerging); the criminal community hasn't suddenly risen in size; and there is no sign of general inflation. A possible explanation is the belief that blockchain, the technology that underlines Bitcoin, will be used across the finance industry. But you can create blockchains without having anything to do with Bitcoin; the success of the two aren't inextricably linked. A much more plausible reason for the demand for Bitcoin is that the price is going up rapidly. People are not buying Bitcoin because they intend to use it in their daily lives (Editor's note: the link could be paywalled; alternative source). People are buying Bitcoin because they expect other people to buy it from them at a higher price; the definition of the greater fool theory.
"7 cents? That's outrageous, the bubble will pop soon!"
"70 cents? Such foolishness, who would ever pay that much for a single bitcoin?!"
"7 dollars? Bitcoin is a scam, who's fool enough to fall for it? Stay away!"
"70 dollars? Look, it's definitely a bubble, it will pop anytime now."
"700 dollars? That's like the tulip mania! Don't ever touch bitcoin unless you want to lose a lot of money"
"7000 dollars? Again, it's a bubble, only a true idiot would buy bitcoins, trust me!"
When a single btc will be worth $70k, those idiots will still spew their usual nonsense.
Yes, I really just link to goo.gl. Why? Because it's an Economist article, which sits behind a paywall. So I instead funnelled the article through Pocket service -- a common way to break paywall -- so that most readers see an unpaywalled version of the story. Now, getpocket [dot] com wouldn't make much sense to others, but goo [dot] gl will make it clear to people that the link has been shortened.
The appeal of Bitcoin is that it is decentralised global money system that cannot be controlled or shut down by governments. The "three strands" are just a bonus. And no, Bitcoin is not anonymous, please stop repeating false claims.
It will continue to be a speculative investment until governments allow you to pay taxes with Bitcoin. Part of the reason the income tax came about at the same time as the Federal Reserve system in the US is that it forces people to use the new currency. You need dollars because you need to pay your taxes. It's the same reason the US fights so hard to keep oil traded in dollars. It props up and makes essential the currency.
Even now we use dollars to judge the value of Bitcoin. Perhaps some day we will judge the value based on how many you need to buy a car (for example). But for the time being and foreseeable future, Bitcoin is only worth what it can be traded for in dollars or another currency controlled by governments.
"What the American public doesn't know is what makes them the American public." -Ray Zalinsky (Tommy Boy)
The thing I find hillarious is the belief in anonymity which, while effectively true for a short time, is actually counter to the whole concept of what is a blockchain.
If you have a real blockchain, transactions are anti-anonymous.
It is a blog post hosted on economist.com that did not appear particularly coherent to me.
Spotted the Bitcoin speculator!
The Economist nailed it. BTC would be valuable as an anonymous digital currency if the ratio of coins to everything that can be traded for coins remained stable. Traditionally, this is what the central bank of a national currency is supposed to do. BTC has no central bank, and limits its money supply mathematically. The advantage of this is that BTC cannot inflate, but it also means that as the currency trades more widely (is exchanged for for more things), the money supply grows only very slowly through new mining. It is DEFLATING, so people have taken to buying it only because they hope to sell the coins themselves for more later on.
As soon as you avoid buying a beer for BTC because you think you will get more for your coins later, it stops being a currency. It becomes a speculation, and by now it's tulip time.
As soon as you avoid buying a beer for BTC because you think you will get more for your coins later, it stops being a currency. It becomes a speculation, and by now it's tulip time.
Bitcoin is just a sort of an ersatz "fiat Gold". I'm surprised that we aren't seeing those doom and gloom gold investment infomercials on Television get competition with Bitcoin investment infomercials.
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.
"The market can stay irrational longer than you can stay solvent."
Just because the price of Bitcoin keeps rising does not mean it's not a bubble. Literally every other bubble has the same evangelists spouting off the various reasons why it's not a bubble and why this time it's different.
The argument that the recent meteoric rise in Bitcoin is due to a herd speculators rather than demand for Bitcoin currency as a currency vehicle is probably the correct one. And if there's one thing that herds do is stampede. Sooner or later, they are going to stampede for the exit and your $7,000 bitcoin is going to plummet back to somewhere near what the true transactional and holding value of BC is.