Bitcoin Was a Bubble and It Popped
bloomberg.com
bloomberg.com
EDIT: and I stand by my claim.
That said -- eventually the price will drop to the point where the price is entirely driven by Bitcoin's natural customer base -- tax cheats, money launderers, drug dealers, etc, and will probably in fact over correct.
Just for the sake of argument, let's said that 'natural price' is $500 or $600 a bitcoin -- it bottomed out around $300 last time and we've had a 'halvening' since then. So let's imagine the price drops down to below $1000, and stays around that range for a year or more. Then a new halvening happens, the price doubles to $2000. Maybe someone figures out how to do something useful with cryptocurrency? 3-4 years from now, people will have already forgotten about the last bubble and might FOMO again. Bitcoin has a long history of boom and bust with each boom being bigger than the last. It won't take much to convince people that another boom is on the offing.
All their prices are denominated in USD, all they care about is that the exchange rate is stable. As for the launderers, you can launder money with BTC just as well when it is $3/coin, as you can when it is $3 million/coin.
Funny I should read your comment about Bitcoin's use for criminal enterprise after I read about Goldman Sach's alleged hand in a multi-billion dollar fraud in Malaysia, or Deutche Bank's multi-billion dollar money laundering. Or going back a few years the Panama Papers and that entire underground financial apparatus that drummed up exactly zero long term outrage or changes. I'll be more inclined to believe crypto is only for thieves when you convince me that the existing financial system isn't also completely rife with thievery and cheats.
Still, I agree with vkou:
> Ransomware authors, heroin dealers and money launderers don't care how much BTC is worth - they only use it to cash out into USD. For them, the spot price is largely irrelevant.
That is, they'll still want to use Bitcoin, just not necessarily care about the spot price. The price is, I believe, driven up by gamblers.
Nailed that one.
I think the key is more to buy in early rather than near the top. Indeed if you time that ok you can sell half your stake when it goes 2x and so be kind of risk free for the rest.
If history is a guide bitcoin will go nowhere for 6 months to a year, then up up slowly, then have another silly bubble a few years later. So my infallible guide is buy in a years time, sell half when the price doubles, wait till there is a bubble and when it's super hyped but starts crashing sell out, probably about 1/3 below the next peak.
"past performance is not indicative of future results"
So no, it's not a sure thing to "happen again" and leading people on like that is just not right. Stop that.
Edit: I don't care what "claim" you stand by.
You are free to disbelieve, at your own expense.
About crypto, I sometimes make bold claims, that are downvoted [1], but I stand by them. And they come true [2] much more often than not.
Last time was about DOGE. Went quite up as predicted, went a bit down during the last crash but still like at position #21 today. And I still expect it to go higher - at least around #15 soon, unless something similar comes.
Before that, it was against ETH maximalism [3] - that ETH was not going to be #1 even while it was raising. I thought it was a good #2 but even that seems was too generous, as it is now in #3 and I can easily see it sliding down more.
Likewise, I state that BTC will bubble up, again and again, until something else offers better features. I haven't seem that "something" yet, hence my claim. The only question is how low it will go before it bubbles up. I'd say 1000. There isn't blood in the streets yet, the crash is just starting :)
[1] https://news.ycombinator.com/item?id=17684359
Investments aside, you should really try to get your hands on some Bitcoin testnet coins and play around. Alternatively, something like Defcoin (http://defcoin-ng.org/) is intentionally worthless and great for experimenting. It's neat stuff and helps you appreciate the technology, as well as appreciate the currency shortcomings that require smart people to try and fix.
Many of us talk about how this has happened and will happened again not because we want you to invest, but because it's old news and articles like this are super boring. We have spent time working with the technology and community and see value in it. Value you may not see without wanting to go deeper, but value that is real and exciting.
A comparison that's way more appropriate is tulips, but even so tulips aren't used as tokens in money laundering scams.
As opposed to the US dollar which is constantly used in money laundering scams perpetuated by some of the biggest names in global finance?
Let's also make sure we understand that the S&P500 (or any stock ownership) is owning _business(es)_. Businesses make money, and they return that money to their owners. Bitcoin is purely speculative and depends on someone else buying it from you, presumably for more than you bought it for. Good luck finding another batch of suckers to fall for this after that last round.
Crypto is... None of these. Whatever crypto is or will become, gold it, currently, is not.
As far as 5 years from now -- who knows where it will be trading. I suspect it will be higher than it is now, but there's never a guarantee on any of this.
My father-in-law didn't know what Bitcoin was in 2011, nor were the sort of newspapers he read covering Bitcoin in prominent articles. Neither of those things are true in 2018.
Obscure for who? I doubt very much your average grocery store cashier, barber, or airline pilot had ever heard of Bitcoin. The farthest-back data I can find (from 2013) shows BTC had a market cap of ~$800 Million. At its peak, it was over $600 Billion. Amongst the HN crowd, BTC was not obscure in 2011—you're right.
MtGox wasn't a secret. It was relatively well known and covered in the news, and I don't mean tech news. 2011, maybe 2012, was when bitcoin entered the public lexicon and it's only become more and more ubiquitous since.
https://plot.ly/~unchained/37/bitcoin-utxo-age-distribution/...
There's a lot to dissect in this chart, so take some time with it. Some observations:
* Most of the market is traded during bull runs. Each bull run sees a large segment of year+ holders take profits. Between bubbles, price-discovery is driven by short-term trading.
* Bear markets see remarkably little activity from holders. 'Hold waves' form between bubble cycles that clearly demonstrate that the majority of coins are held by 'firm hands' that bought in bull runs.
* Right now, a large segment of people that bought in the 2013 bull are starting to mature into the 5+ year bracket. A significant amount of coins are still being held in this way. It's remarkable to see it in real time. Neither the crash to $150 or the run to $20k motivated a large selloff.
* It took about 2 years after the 2017 bull for <6month bracket to fall to ~25%. It only took one year this time.
* Age distribution is becoming more bimodal: stubborn holders and large healthy active market.
* The current price crash is rather anomalous. An incredible 4% of coins in existence moved out of 3+ year bands very suddenly. This is among the 3 or 4 largest shifts, the others occurring in much different contexts. Given how sudden it was, and how specific the age band, I have my guess as to whether this is a cause or effect of the drop.
The main takeaway from this is that Bitcoin investors are remarkably willing to hold. "Hodl" is more than a meme, and the current crop seems about the same as previous ones in this regard, with a growing 'hold wave'.
I also think the last 'pop' was a lot worse due to the looming existential scaling threat. This has been addressed in an unoptimal way, but one that is remarkably true to Bitcoin and overall encouraging.
How does this look like in other markets? It sure tastes like survivorship bias. As in: "Investors are willing to hold" because everyone else already quit.
Considering the downvotes I got, I suppose I was out of line suggesting a wager, but I've yet to see convincing evidence for why blockchain tech can't work. Sure it's overhyped way beyond what it deserves and it hasn't found its "killer app" or niche yet, but that doesn't mean it won't.
Nano's my favorite coin. It's fee-less, near-instant, and secure. Its largest flaw (and one all coins share at this point) is its tendency to fluctuate in value. But this problem is soon to be overcome by stable coins. Once that's done, its only remaining disadvantage will be lack of adoption. And if the product's right, I don't see any reason why a superior product won't gain market share given enough time. And it's not like crypto is under some investor enforced deadline to reach a certain market share, it's got all the time in the world.
Anyone care to point out any flaws in my thinking?
Is crypto:
money/currency (spend able exchange of value)
a store of value (investment etc)
a cool technology with no current useful application
or something I don't understand?
If crypto is money, can I:
Spend it at Amazon? My grocery store? My corner deli? Pay my rent? Pay my employees?
If crypto is a store of value can I trust it will have any rational storage value over any time period?
Given the not very well bit, it's main use in reality is doing stuff discouraged by governments such as buying drugs and pushing scammy investments.
Whether it will develop beyond that I'm not sure.
As to your questions, you can spend it some places. I think newegg takes it, Valve used to take it with Steam, etc. There are corner delis who take it, I'm not sure about yours. Your employees may be ok with you paying them in it, but that's an agreement you have to have with them.
To your last question -- no, I wouldn't think so at least for now.
Throughout most of modern history, you could buy things with gold and that's unlikely to change. Barring alchemy or some extreme globalwide natural disasters, there's a value floor on gold that's missing with bitcoin.
There are no current killer applications for bitcoin beyond some semi-legal trade of illicit drugs and ransomware which doesn't even need or cause the currency price to go up since it's usually converted back and forth to fiat. Perhaps this will change if countries currencies go belly up and die (think Venezuela, Argentina and Zimbabwe).
The purported uses of gold have no relevance, they're just part of the illusion of gold having value. We value 3 swimming pools of an arbitrary substance at 7 trillion dollars. There is no utility that even justifies 1% of this valuation. It does not produce dividends.
Would you rather speculate on a "shared illusion of value" that has massive room to grow into the digital age, or one that is potentially reaching peak levels of absurdity?
Both assets are illusory bullshit - but you can make a lot of money trading bullshit.
The presence of hype, fraud and large fluctuations in prices do not invalidate new technology or concepts.
The dotcom "bubble" was a hypefest, then it deflated, but the underlying technology and concepts have spawned something many times larger than the original bubble.
If it turns out that cryptocurrencies have no purpose beyond a small niche, then we'll see in hindsight that it was indeed a bubble.
But if creative people find a larger use for cryptocurrencies, then hindsight will understand the 2018 "crash" as just another in the fractal series of price declines followed by even larger price increases.
Since the underlying technology has withstood sustained attacks across the technical, economic, political and legal domains, perhaps reports of its death are premature.
[0] https://books.google.com/books?id=sRYW1wtdER0C&pg=PA136&lpg=...
When it hits a market cap of $334 billion, it becomes something more real. That is when Warren Buffett and Charlie Munger take a look at it and declare it something to avoid "like the plague" (Munger called Bitcoin "rat poison"). The greater market looks at it and it drops 80%.
Bitcoins are completely worthless. They have no value whatsoever. So the entirety of its current supposed market value of $61 billion (which was supposedly $334 billion a year ago), is closer to $0 than $61 billion.
Many overpriced dot-com stocks in 2000 or over-priced real estate in 2008 are still things which have value, even if the price went down for a while. Bitcoins have no value. I said so when the market cap was supposedly $240 billion ( https://news.ycombinator.com/item?id=15986475 ), I say so now, when the market cap is supposedly $61 billion, and I will say so until its graph starts hitting the $0 limit.
People say "it's valuable because it can be traded electronically", which is meaningless. Dot-com stocks could be traded electronically in 1999. The important thing is the value underlying what is traded. Bitcoin has none.
Just add this bad article to the 300+ Bitcoin Obituaries, and the even more writings that try to point out the hard lesson learned by us idiot Millennials.
A reminder that some Millennials are almost 40 now, we were the first generation to grow up with the internet, and we lived through things like the dot com bubble and the 2008 housing crisis. What could we possibly know about technology and money? What could we possibly desire to see possible change and improvement in?
This was just the first time we saw this happen globally and with digital goods. Which, possibly coincidentally, happened to baby boomers right when they were around the same age/point in life as the millennial generation is now.
During the period of stability that follows, they're nowhere to be found.
After things have already turned around, they jostle with each other in an attempt to explain it all to Joe Sixpack.
What the article fails to mention is that each "pop" has left the exchange rate higher than the previous top.
Missed opportunity to investigate an emerging asset class with no direct analogy to anything preceding it, periodic manias or not.
It’s much more nefarious...the boom and bust articles are essentially ordered by individuals/groups with the influence as part of the market manipulations. It’s not entirely unlike what people refer to as submarine articles, what’s lurking underneath these publishing’s are attempts to move the markets (the first wall street movie actually does a decent job of demonstrating this practice in the 80’s for the stock market).
These details will be exposed now that the SEC is beginning to target manipulations in these markets.
"Open source distributed transaction ledger" sails right over their heads but if I said I hand out a new dirtcoin to whoever moves the most dirt around my yard each day and here are some exchanges carrying dirtcoin I'm met with an avalanche of Wall Street jargon about how dirtcoin is the best investment anyone can ever make.
[1] https://medium.com/@PanteraCapital/market-update-pantera-blo...
[2] Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers. Paperback – January 28, 2014
[3] https://www.investopedia.com/articles/investing/091814/what-...
https://www.investinblockchain.com/cryptocurrency-adoption-r...
BTW, the reference states
"The study indicated user growth rates were higher in 2017 but continued on into 2018 at a rapid pace."
That's because bitcoins base price is a very round zero, and the only value associated with them was derived purely from speculation and prescribed prices used in money laundering operations.
Because it is designed to be deflationary?
Because its (energy cost) overhead is still sky high and likely to remain reflected in prices?
Because it is the "brand name" market with whatever caché remains to that name reflecting in prices?
Because sunk costs of existing investors want to keep the price high for as long as possible?
Those are just a few of the more obvious reasons. Not that I think it's any one thing here, it's probably some admixture of the above and other reasons.
This is a huge fallacy.
https://digiconomist.net/bitcoin-energy-consumption
https://arstechnica.com/tech-policy/2017/12/bitcoins-insane-...
Yes, it's down from the bubble peak in mining, but it is still a massive over-expenditure of energy per value. Right now, still, according to the Digiconomist stats above, ~15 average US homes can be powered for a day with the energy spent to make a single Bitcoin transaction block. That's a considerable amount of energy.
The mining viability follows the price of bitcoin, not the other way around. The mining costs are in no way reflected in the costs of mining.
Stranger still, all coins seem highly correlated. BTC goes up, all coins go up.
I realize this behavior is not new and the market has been highly correlated since the beginning, ...but why?
Crypto coins, despite ICO promises, have not historically been revenue generating assets, so there is no future cash flows generated by them. Thus they can be considered fungible, retaining the same value despite their different symbols and nominal prices. With the level of distrust in the ecosystem, only “bad” news affects a given ICO, sending its value to zero. Neutral news, or good news, does not increase a given coin’s price, so they all settle around the same “value”, and all their “values” move together.
When anyone or their pet monkey can clone a Git repo, change some variables, and launch their own ICO with zbsolutely zero proprietary innovation, it is to be expected that all crypto coins will approach the same value.
(I put “value” in quotes because different coins have wildly different prices, being a function of some variables in the coin’s software determining e.g. how many were “issued”, but you have to ignore those prices and instead think about the underlying “value” represented by the coin. It’s really not much at all — perhaps only the sunk cost of electricity, but likely less than even that.)
I would also love an analysis on what is moving the market. It has to be more than Tether at this point.
My current theory is that Bitcoin is the "reserve currency" of all these coins. That is, their price is better understood as being expressed in Bitcoins, not in USD or other currency.
For a trader, that means that to them 1 ETH is currently worth 0.02678663 BTC. The USD price of Bitcoin doesn't come into play here. So, if Bitcoin goes down, the relation to ETH means that it follows, since 1 ETH is still worth 0.02678663 BTC.
Edit: Why would they do this? A number of reasons, the biggest two being habit and volume.
Most coins are traded on networks that don't have fiat currencies, so they had to choose a cryptocurrency base. Also, many traders in the realm started out with Bitcoin, and love Bitcoin, and want more Bitcoin. So they don't care if a trade gets them USD, they just want to grow their BTC holdings.
Finally, with trading, volume is very important - you want as much being offered for sale as possible. If you split up every order book (btc/eth, xrp/eth, ltc/eth, usd/eth, xrp/ltc, xrp/usd, ltc/btc, etc etc) then the volume of each 'book' is divided amongst the options, making it harder to move larger amounts from one to the other.
It's one thing to believe that Bitcoin is the future, it's another to believe that "Bubbles are mathematically impossible in this new paradigm. So are corrections and all else."
Eventually, we might see the terminology change from "bubble" to "spike." It's already happening... Albeit slowly [0]. Can anyone think of a better term?
[0] https://trends.google.com/trends/explore?date=all&q=%22bitco...
buys 5 more
You're just gambling.
And if you sell enough when it's high, then you're not gambling any more.
"<X> is a $10 Billion/year industry! If we could just capture 1%..."
Just because some other thing was successful doesn't mean your pet thing will be successful too.