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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.
I was hoping there would be one of the many many "this bubble will go forever because it's totally not a bubble!" folk in here. Thank you for not disappointing. :)
That said, I'll bet all my 0btc that btc will break 10k before it crashes, and if it ever stabilizes to behave like a currency it'll trade really favorably against the dollar.
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.
If you really believe that, just short it instead of writing a slashdot article :)
There are more than three reasons. The question begging here assumes the only legitimate usage of bitcoin is among criminals. This is patently false. There are nations with less than ideal currencies where bitcoin is commonly being used as exchange currency. Even a poor nation can support more currency than the total bitcoin economy and bitcoin is global. Bitcoin has a property that no other currency is proven to have (including alt cryptocurrencies) transactions are not reversible and bitcoin cannot be counterfeited.
"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."
False. Bitcoin circulates, it has underlying value, and it is deflationary. Every day bitcoin goes out of circulation as people lose access to wallets. I myself have lost access to at least 25 bitcoin over the years and nobody else has access either... that would be $187,500 at the $7500 per 1.0 btc I saw the other day. Bitcoin has had a number of bubbles and when those bubbles pop people panic and sell at a loss. When those buy in to the next bubble they buy at higher prices. This create a floor where people are generally invested at a higher price and their willingness to sell stops at a higher price. Also because bitcoin has been following that bubble, pop, bigger bubble cycle consistently since it's inception with first notable bubble being dollar parity the confidence in bitcoin is increasing over time, this too will slow the selloffs and when combined with the fact that genuinely new investors eventually slow to a trickle will mean smaller and smaller bubbles.
There is no absolute reason for any particular price on bitcoin to be a ceiling so long as the market is fluid. In fact the 1.0 BTC mark needs to grow quite a bit more for price stability so that there aren't investors who can notably move the market. I believe I calculated something like $10,000 per 1.0 BTC back when SR1 was operating. If there is too great a disparity between where most people bought and the current price those people will cash out when the growth appears to slow.
The recent bubble is largely because financial institution scale investors have begun investing. I don't know how safe it is to assume that can't continue to feed for quite awhile. Bitcoin is not open to the puny little wallstreet stock market type investor, it is open to global investment on a Forex level scale. It is not unreasonable at this point to think Bitcoin is only proven cryptocurrency or blockchain implementation at this point and will not go away in the forseeable future. That leaves room for a multi-trillion dollar market, not a few billion.
When cryptocurrency ultimately gains traction, it'll be because some major institution or government decides to implement it on scale. The world is never going to trust their money to the good folks who brought us Magic The Gathering The Online Currency Exchange, Dogecoin, and "oh, that's bad--well let's just try to get everyone to agree to fork the entire danged currency." They just won't. There's a fundamental, irreparable lack of gravity, responsibility, and accountability in the cryptocurrency world today.
People on the outside see cryptocurrency as one part hobby, one part religion, one part social experiment, one part speculation, and one part black market. Frankly, they're right--and they're right not to touch it with a ten-foot pole.
Obliteracy: Words with explosions
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)
Firstly Bitcoin is NOT anonymous and all payments CAN be tracked. The tools to do so are not terribly accessible and when they are then they are not sophisticated enough.
The WizTec team have found the Mt Gox stolen funds and that has lead to Alexander Vinnik's arrest. So No, it is not anonymous.
Gold and BTC has some commonalities. There is no particular reason to buy gold beyond a store of value. That in itself is a utility.
Yes, gold is used in other application but those are not the main reason for its price. There is a limited availability, supply rate and a finite amount of resources. That is very similar to BTC. BTC has an advantage because it's so much easier to transfer. Try moving 100kg of gold between borders as a method of payment...
As BTC demand grows because of its utility to store and transfervalue easily without a centralised authority to control flow so will its usefulness grow. More tools and methods to handle BTC will reach every day people.
BTC IS A BUBBLE. There is no doubt it is a bubble. Stocks are a bubble, bonds, the housing market and in deed the economy is a bubble too. Should we simply not invest in anything because its a bubble?
The greater fool is a classic example of the Tulip bubble mania and the psychology behind it. This does not fully apply to BTC because BTC has a utility that utility gives intrinsic value. There may be much better ways to do the same exact thing that BTC does today, indeed from a technological perspective there are except they are not as well know and are not as widely endorsed.
History is riddled with superior failed products. So BTC has the advantage, has an amazing Dev team. They are in the lead in multiple fronts and recent shakedowns with BCH and SegwitX2 etc are passed.
We know BTC is resilient, we know large financial bodies cannot crash it and we know its growing in adoption.
I recommend that each person evaluate and do their own research as to the utility of Bitcoin. You may find that buying $1000 worth of it today can make for a very nice retirement bonus.
It is unclear which currency or token will come to dominate but we all know the blockchain and by extension distributed ledgers will replace fiat money.
One parting comparison to tulips. In the tulip mania you had to buy 1 whole tulip at outrageous price without any utility. You do not have to buy a whole Bitcoin. You can buy fractions. If buying a fraction of something to sell at a greater cost, like stocks, houses etc, is only for fools then investors anywhere are fools.
A 'singular oddity' is an event that cannot be explained and only happens when you are alone.
Well done and well said. You catch a lot of undue flack.
Meinherr, tulips have risen to 3,000 guilders per bulb, and show no signs of a "bubble."
Not sure why people think Bitcoin is anonymous, but the blockchain is necessarily completely public and it's not that hard connecting transactions with real people and organizations.
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.
Actually I'm lately hearing this line of argument:
"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? My barber recommends Bitcoin, and so does my dog walker..."
"700 dollars? Okay, now I'm buying in."
"7000 dollars? I'm riding this to the stars. Desert Rat Blog is calling for $100,000 BTC by 2020!"
Eh... The usage of BC in areas with hyperinflation is not proof that it's detached from fiat systems because it's not. Areas with hyperinflation traditionally switch to using currencies other than their own one, meaning traditionally the dollar and other major currencies. In this case some have chosen to use BC, but most of the black market trade is still conducted using other major fiat currencies because they're more easily available.
You still need fiat currencies to purchase bitcoins. Without the exchanges (which can be regulated quite easily) bitcoin would be useless as without a convenient way of transferring back and forth between fiat-bitcoin-fiat the utility of BC (and hence, its value) will plummet.
What? Compared to regular debit/credit cards that are pretty much universally accepted and cash BC is terrible in terms of simplicity of use.
There's a problem with this incentive though: the more time passes, the more complicated and difficult the mining becomes which makes it increasingly energy-intensive and hence costly. For the mining to be profitable the price of the coin must keep going up to match the increasing difficulty of calculation, which means should the value of BC drop drastically in the future due to any number of reasons (competitors, increasing regulation etc.) the whole mining infrastructure may suddenly become massively unprofitable and collapse.
"It is the business of the future to be dangerous" -Alfred North Whitehead
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.
It's actually pretty easy when you ponder for a moment.
We're currently in a situation not unlike that of the late 1920s. There is an enormous amount of money pooled on the investment side that is sorely lacking anything to invest in, pretty much for the same reasons: WAY more supply than demand. With a lack of demand, there is nothing "normal" you can sensibly invest your money in, it is simply not very lucrative to open a business or to finance one if said business cannot make any business for a lack of demand.
Investors back then simply parked their money in shares which drove the price for shares up. That in turn caused the middle class to turn their head. Their motivation to invest was a vastly different one. They were usually not the ones to invest in shares, their form of wealth accumulation was traditionally more one of savings and maybe bonds, but with those pretty much being destroyed by a low interest policy (and back then also the fallout with war bonds that suddenly turned out to be worthless and thus destroying faith in that form of investment), they were now looking for an alternative too, and found one in shares that looked like it wasn't that risky because, hey, they keep rising and rising! And at worst, I'll lose what I put in, and I don't get any money for savings anyway.
This is basically where bitcoins are now. My hope now is that the third act isn't repeated. Because back then people thought "Hey. Interest rates are at an all time low, share revenue is between five and ten times the loan interest, the more I take out, the higher my profit!"
We know the rest.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
"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.
Were you able to read the entire article? I was. I can sympathize with the editor. If he or she had posted the standard economist article, they would receive flak for linking to a paywalled website. They found a clever -- and seemingly ethical -- way to get past the paywall, and yet the whining from people. Pocket is owned by Mozilla, so people here who are worried about some company seeing their request -- give me a break.
"It isn't manipulable -- If someone had 51% of the BTC mining, then one would worry."
Wrong! China holds most of the hashrate and processing power. They can easily hit a 51% attack if they wanted.
"It is secure, and far more useful than most fiat currencies."
It is digital and thus it can be hacked. People have had their bitcoins stolen through electronic means. Security is a fallacy in a chaotic system such as a computer.
"The value isn't going anywhere but up."
And anyone that paid attention to any economic history will quickly say "This is a bubble that's going to leave a lot of 'investors' high and dry."
"When you get paid, you stay paid."
WRONG. To boot, plenty of fraud involving exchanges of goods for bitcoin has already happened, leaving plenty without recourse.
"BTC only will go up in value."
That you use the qualifier 'only' demonstrates you really have no fucking clue about economics.
"BTC is verifiable independent of a bank."
Verifiably stupid with no government insurance if your bank gets robbed, like Mt. Gox.
"If you avoid Mt. Gox like exchanges, your BTC is far safer than a bank."
Given my fuzzing audits on several exchanges - you're better off with a bank. And as stated above, banks come with insurance if you lose your money.
Still waiting on Serviscope_minor to wake up to fucking reality and realize that Jessica Price isn't going to fuck him.
Pretty much. Nobody is buying bitcoin right now to make purchases, you simply don't buy something that's experiencing value increaases like this to use to buy a hamburger tomorrow.
Tons of people are buying into it precisely because its shooting up... which makes it shoot up higher. That not only speculation... its bubble behavior.
Pretty much. Nobody is buying bitcoin right now to make purchases, you simply don't buy something that's experiencing value increaases like this to use to buy a hamburger tomorrow.
Tons of people are buying into it precisely because its shooting up... which makes it shoot up higher. That not only speculation... its bubble behavior.
Yep, and I can't wait to see what happens when it collapses and they all find out it will take several days to sell their stock because the entire bitcoin network is limited to about 7 transactions/second. Several days watching it crash, unable to sell unless they _seriously_ undercut everybody else to jump the queue.
It'll be a thing of beauty. A death spiral never before seen in any other 'bubble'.
No sig today...
Nope, not fixed at all
2/1980 - $2,077.93/oz
2/2001 - $367.67/oz
2/2011 - $1573.27/oz
2/2016 - $1,168.00/oz
Tell the guy that bought in 1980 that the price always goes up.
These are inflation adjusted dollars.
No matter how we measure it, there is simply not enough gold to support the US economy, much less the entire world's.
No, you're wrong.Suppose the world's currency were entirely backed by gold. A single ounce would be worth $200,000. You wouldn't be able to buy an ounce (at least, most people wouldn't, which is unfortunate because it's nice for decorating purposes). The economy wouldn't collapse. People would start selling "micro-ounces" of gold, or use a bi-metallic standard. Banks would issue paper backed by gold, but each bill would only be worth a milli-gram or even micro-gram of gold. These strategies have been used for millenia. No matter how much the value of the world increases, the current amount of gold (or any other thing) can scale up to represent it by further dividing it.
Magical stuff this gold. So it's value can increase infinitely it seems. And soon we will be trading atoms of it. At which point, what will you do that has true value with an atom, or even micro ounce? And how are you going to store that micro ounce, if it is a certificate for it, well welcome to fiat.
There is a reason we don't tie the world to gold. There isn't enough of it, and it's volatility is too high because people ascribe magickal properties to it.
Anyhow, I guess some people do eat it, so it's the equivalent of bread?
The shepherds did so well protecting the flock that the sheep no longer believed that wolves existed.