Are we in a cryptocurrency bubble? A comparison with the 2000 dotcom bubble | Hacker News Reader

Are we in a cryptocurrency bubble? A comparison with the 2000 dotcom bubble

medium.com

21 pointsjimmygatz14 comments

As someone standing on the outside, the massive boom in value certainly sounds like a bubble to me. I'm hearing all the same stories: the newly rich buying absurd cars, "my friend made x much". Eventually all the tourists who want on will get on, then they'll start gettin back off.

The speculation about cryptocurrency valuations is a great example of how bad people are at dealing with radical novelties. People spout meaningless analogies, be they about decades old market crashes or centuries old speculative frenzies like tulip bulbs, as if they apply here when clearly they cannot.

Appreciate the feedback!

Is there any example from history you think could be used as an analogy or do you think there's no way of comparing this to anything that's happened before? If so, how do you think about cryptocurrency valuation?

This is the first time we've had a bubble around an asset with zero intrinsic value. Even tulips, or "worthless" Weimar Republic bills had negligible value.

When Bitcoin implodes the value of your Bitcoin collectable merchandise will vastly exceed the value of your BTC. Those physical coins will slowly increase over time as their obscurity and notoriety grows.

I hear this argument a lot and I'm never really sure what is meant by "intrinsic value"? Why do you think bitcoins have zero intrinsic value but tulips and weimar republic bills do?

Bitcoin has many uses, but for the sake of argument let's take its often stated use of acting as digital gold. If gold is "intrinsically valuable" which I presume you think it is, then so is bitcoin. Gold is valuable because it is a good store of value due to its properties of being scarce, long-lasting, easily divisible, transportable, etc. Bitcoin is all these things too and in fact is a much better store of value than gold. I see no reason, other than "brand", why gold should be "intrinsically valuable" but bitcoin not. Btw, gold is a 3-6trillion dollar market depending on how you do the accounting (https://schiffgold.com/commentaries/just-how-big-is-the-gold...).

Good luck transacting in gold, because it can't be done efficiently due to assaying costs. You can transact in metal bars stamped by Credit Suisse or another bank, or coins minted by some sovereign or other trusted authority, but nobody in their right mind is going to accept plain gold for any transaction. Without the imprimatur of some authority, it's simply not trustworthy.

When Argentina's economy collapsed people would frequently transact in gold. It wasn't bars, but just junk gold, something that a simple chemical test could prove was gold if necessary.

You can eat tulips. You can burn bills.

Gold has been used for various things since it was discovered. It's an essential component in many electronics, and if nothing else, it looks nice.

> Bitcoin is all these things too and in fact is a much better store of value than gold.

Bitcoin is none of those things. The moment the Bitcoin network collapses you have nothing but a bunch of random numbers, all of which are absolutely worthless.

Bitcoin has been around less than ten years. Gold has been around for billions. You've got a long way to go to prove Bitcoin can be as durable as gold, which given it's an atomic element, is probably impossible.

I'm not saying that gold is the best store of value, but it's a hell of a lot better than Bitcoin.

As far as I know there is no historical precedent for cryptographically secure ledgers with distributed consensus. I'm not trying to poo-poo the article, sometimes we really do have to admit that here be dragons.

Of course, this is more or less what people said during the dotcom bubble.

Bitcoin chart is a fractal. Every single time in the history of it there is a post about it being a bubble. $100, $1000, $3K, $4K, $10K, I keep seeing this for yyyyears.

There's a limit to how stratospheric this price will go because at some point it will blow out so hard it poisons the whole Bitcoin economy.

If it doesn't happen before $100K I'd be truly astonished. The longer this goes on, the higher it goes, the harder and faster it will crash. A lot of people are going to be caught holding nothing.

Allow me to save you sometime, the author basically sums it up with this:

    Conclusion: It’s obviously a simplified model and you can play around with the numbers and get marginally different results, but the key insight is that even if you’re a fervent crypto believer, if you think there is a nonzero chance a crash might happen then in order to maximize your EV (i.e. make the most money) you should keep some % of your money on the sidelines to invest once the bubble pops and lower your average buy-in cost. The higher the probability you assign to a crash, the more money you should keep on the sidelines and vice versa

Sorry, trying to read this was so painful and time wasting on mobile.

For anyone else not interested in scrolling:

Conclusion: It’s obviously a simplified model and you can play around with the numbers and get marginally different results, but the key insight is that even if you’re a fervent crypto believer, if you think there is a nonzero chance a crash might happen then in order to maximize your EV (i.e. make the most money) you should keep some % of your money on the sidelines to invest once the bubble pops and lower your average buy-in cost. The higher the probability you assign to a crash, the more money you should keep on the sidelines and vice versa

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