There's an awful lot of talk in the media and among economic experts that Bitcoin is a bubble right now, with all traditional indicators leading them to that conclusion. However, I believe they are discounting just how widespread the demand is. In my opinion Bitcoin is not a bubble, it has barely reached its full potential. I think we won't start getting into serious bubble
Bitcoin is definitely in a bubble AND it hasn't reached it's full potential. The two aren't opposed to each other. Like Erik Voorhees tweeted the other day....
"Bitcoin can be *both* in a bubble and underpriced, simultaneously. It depends on your timescale. Remember the poor fool who bought at $31 in mid 2011 at the top of that bubble..."By traditional measure, like I said in my original post, you came to the conclusion that Bitcoin is a bubble. If we also look at it from the perspective of behavioral economics, and what percentage of the herd has common consensus on the future direction of Bitcoin, there are still many individuals with different biases. During the tulip bubble, few people thought the price would go down, as is the case with nearly every other bubble. Bitcoin has undeniably reached critical mass, but I wouldn't go so far as to label it a bubble until we see how the other 95% of people in the world who don't use Bitcoin react to it. This 95% is a highly generous estimate, using America as a baseline for the entire world.
I really like how you brought behavioural ecconomics and the fact that the current market is a fraction of the potential market into the discussion. Where a bubble exists with investors aware that price far exceeds value, it is typical for all investors to closely watch the market while hovering a finger over the 'sell' button. This way they have a slim chance of being the second-greatest fool.
Then, when the bubble-price drops, it plummets quickly and keeps going until consensus is reached that the investment is valued at its real worth. If you look at the price history of bitcoin, this is not what happens. The price drop is steep, but the 'current value' baseline is never too far below the peek it dropped from.
For me, that is a clear indicator that it is not a bubble. Bubbles pop. Bitcoin declining by over 60% in 2014 after a 5000% runup....isn't a bubble popping? Then what would you consider the housing crisis, which was belied by assets runup and decline far, far smaller in magnitude than that.
It seems by using BC's line here....that people in 2013 would have been wrong if they correctly called that as a bubble....because an even far smaller percentage of the herd had heard of the concept, much less believed in it.
Agree to disagree, but we are most certainly in a bubble, imo.
Yes it has been an extremely animated visualization of the boom and bust cycle, with the rapid BTC price rise in 2013, two year correction period and subsequent recovery. Maybe DNotes' economics expert wants to weigh in on the matter, what do you think TeeGee?
I tend to take more conservative and 'patently obvious' positions that factor in current industry trends, that may not be helpful for future price speculations. But I may give it a try.
Generally, my belief is that prices of an asset will reflect its underlying value over the long term. It is for this reason that we decided to make DNotes into more than just a currency, and to back it with an ownership claim against the profits of a business ecosystem that also works to add value to the DNotes currency through proprietary applications. It may well be the case that many currencies are in a bubble. At this present time, the industry is sorting through what is good, and what is not, and this process takes time. In the long-run, currencies that do not offer any real intrinsic value will likely go to zero.
I also think that long-term prospects are dictated by industry interest and consumer acquisition -- which the industry is currently drawing in unprecedented amounts of new users and capital. Let's say that currently 1% of people own cryptocurrencies, well what happens when that number reaches 2.5%, 10%, 20%?
There is also the addition of futures markets -- markets where contracts of the non-physical asset are traded, that heavily influence, or in fact drive the real physical assets price. There could be a situation where Bitcoin's intrinsic value proposition as a decentralized currency (which is not exclusive, but for now it is preeminent) continues to rise for its users, and the number of users continue to grow, but futures market speculators may work in the opposite direction, for institutional money can leverage large sums of capital to 10x, 20x, or even 100x, and easily offset the real purchases of tens of thousands of new users. That said, if market sentiment was that positive, the futures markets would likely reflect these industry customer acquisition growth figures.
It tends to be the case that due to our innate biases, that bullish news and speculations "makes sense" to crypto holders (hodlers), and bearish outlooks make sense to those who never got involved or who are motivated by different ideologies (nocoiners). I would not be surprised to see large swings either way. In the medium term, I wouldn't' be surprised to see Bitcoin reach well over 100 thousand US dollars based on current growth trajectories and industry interest. I do not think that the cryptocurrency industry is prone to the same types of implosions that fiat money markets are, where limitless money printing makes the underlying asset markets less stable once a hole grows large enough -- where the original investments were only made possible by relentless central bank money printing and bank lending. With cryptocurrency, those inflation growth rates are predictable, and no other entity is just printing more money. A large number of margin calls on futures contracts (which are purchased in dollars) could adversely affect the Bitcoin price if the amount of money going into Bitcoin begins to slow down too much. I don't think the Bitcoin markets are large enough at this time to negatively impact the world economy to any significant degree at its current size, but if it were 100+ T, then we could reanalyse that.
Everybody is saying it is a bubble, the people involved in the industry question that themselves. To me that seems somewhat of a hint that it may not be. I haven't met anybody yet who is invested, and hasn't considered that it 'could be' a bubble. Peak investing naivety requires investors to no be aware of that possibility.
Who knows? I'm watching.
