Is Bitcoin / Blockchain A Bubble?
My friend Pete told me that some economists have negative things to say about Bitcoin recently. So I googled it and found this:
I’m a skeptic — I want to hear from perspectives which support the argument that Bitcoin / Blockchain is rubbish.
I’m an engineer — I want people to tell me it’s broken so that I can try to think of solutions.
So I’m going into this thinking: OK this could give me some great food for thought — it will challenge my perceptions and I might learn some new information.
“It’s a utility token for criminals, terrorists, money launderers, tax evaders”
Dang it.
Those are juicy news headlines — but a few years ago when Silk Road was at its peak — I found some empirical data. Illicit transactions made up roughly 8-13% of retail transaction volume based on network analysis at that time. That’s significantly less than the percentages attributed to $USD black market activity (roughly 20% of payments volumes).
Bitcoins are primarily used for a few things:
- The ability to record messages / scripts in a giant public ledger.
- Speculation that #1 will have long-term value. Hodl.
- A store of value / wealth preservation instrument that is significantly different in structure than fiat, equities, and precious metals.
- Cross-border payments. Fees are lower for migrant labor remittances and ease of use cases exist in regions with capital controls.
- It is a highly liquid investment instrument and a highly efficient payment instrument at least regarding ICOs.
Those are a few examples. The PITA will likely point to ICOs as a red herring… that’s fine — they’ll get it eventually.
That list doesn’t even delve into the vast potential use cases for a Blockchain. Where we still don’t know how many industries it will affect and to what extent. I’m just talking about the bitcoin blockchain’s unit of account BTC — and some of its uses right now.
“It’s clearly a bubble — it looks like the second biggest bubble in history after tulip mania. Although at the rate it’s going it will pass tulip mania, you know, in a matter of days.”
The irony of this situation is the extent to which there is a mania surrounding the myth of “tulip mania”. It’s a story that continually gets referenced as some boogey man — but in actual history — it didn’t happen the way it’s portrayed.
Academic historians dismissed this myth a few years ago (link).
“Most of what we have heard of [tulipmania] is not true.”
— Anne Goldgar Professor of early modern European history, King’s College London.
Even if there were a bubble around tulip bulbs in the 17th century Dutch Republic; there isn’t enough data in the historical record to construct the notion or inference that it was the biggest bubble in history.
What a giant leap of logic to then conclude that Bitcoin is #2. Based on what? Trading volume? Some future market crash?
I’m pretty sure that the 2008 subprime mortgage derivative instrument / rehypothecation crisis was a larger systemic risk than Bitcoin is today.
Economist Jim Rickard’s argument is a bubble.
The interview goes on and a couple other mis-truths are espoused about Bitcoin and the exchanges on which it trades… my favorite: “there are no regulators”.
The article has about 35,000 fire symbols — whatever that means. I guess it is popular.
I generally think the current price movement is pretty aggressive — maybe even illogically exuberant. Is it a bubble? I have no idea.
What does bubble mean?
I hear people reference the late 90s dot-com bubble as some kind of warning. Yet here we are using the internet.
Fidget spinners? Probably overpriced AND the underlying asset probably doesn’t have long-term value. That’s just my opinion. I’m not a fidget spinner expert.
This is an important distinction.
I’m saying — even if Bitcoin prices are a “bubble” — does that make Bitcoin any less interesting / valuable in the long-term?
To me it just means that the price might not accurately track the value of the current ecosystem.
In the case of the 90s “dot-com bubble” — sure the price crashed. But Apple, Google, and Microsoft are the most valuable companies in the world today.
From a computer science standpoint: there is no question in my mind that Blockchains and Bitcoin have a bright and lengthy future.
Does the price of $20,000 for 1.0 BTC accurately track its value?
Who knows.
I wish people would stop acting like they have total information and using it as a platform to preach false gospel.
It’s as if experts do not understand a deeply technical and conceptually complex ecosystem that is outside of their domain expertise — so they call it a bubble.
Hey experts, try this instead:
I don’t know. — Alex Waters
