#Discussion: Is Bitcoin In A Bubble? Or Not?

3년 전

This topic is one of the most controversial topics in crypto land. Many people insist that Bitcoin is in a bubble. On the other hand, many insist on that it is not only not a bubble, but rather it is undervalued. In this post, I will summarize the reasoning of both sides.


bitcoin-bubble.jpg

A Bubble Indeed


Experts who claim that Bitcoin is in a bubble, provide the following reasons for their belief:

1- Bitcoin Price Has Increased Much Faster Than its Use

This indicates that the price increase is totally based on speculation. It is only the optimism of speculators that is driving the price up. No one is actually using Bitcoin. In short, Bitcoin's price has exceeded its intrinsic value. This is a well-known characteristic of bubbles.

2- Bitcoin Is Not Backed by Anyone

Bitcoin is not backed by any central bank or institution, whereas every currency is insured by a central bank. Without such an institution, no one is protecting Bitcoin from a dramatic crash. This makes Bitcoin so vulnerable.

3- Bitcoin's Value Is Imaginary

Bitcoin only has value because you think it does. There is no real value backing it up.

4- Bitcoin is Vulnerable To Hackers

The short history of the cryptocurrency is full of sad stories of people losing their money to hackers. Bitcoin will never acquire the trust of the masses.

5- The Governments Will Ban Bitcoin

Some of them already did ban it. Some will soon follow. This will prohibit mass adoption of Bitcoin. After that, traders will lose their optimism and start selling. Then, the market will crash.

6- Bitcoin is Mainly Used For Illegal Activities

It is a dark currency used in black markets. Most law-abiding people would never touch it.

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Bitcoin Is Not A Bubble


Experts who are promoting Bitcoin claim that it is not in a bubble at all. It is rather undervalued and we are at the beginning of its price surge. The following is a summary of their reasoning:

BTC_not_bubble.jpg
Source

1- Bitcoin Is Decentralized

Bitcoin is free and wild. There is no central government controlling Bitcoin. No corrupt agency can manipulate it. With Bitcoin, you are in control of your money. So, Anyone worrying about financial crisis would refuge to Bitcoin.

2- Bitcoin's Supply Is Limited

Fiat currencies are printed by their controlling government. Whenever a government has financial problems, it resorts to the money printing press. This has caused endless inflation everywhere. It has devastated many countries like Venezuela and Zimbabwe. Bitcoin is not like that, luckily. It has a very limited supply and the newly printed bitcoins is decreasing. This makes Bitcoin an excellent store of value.

3- Bitcoin Is Just Starting

Most people do not know what Bitcoin is. The public awareness of Bitcoin and its adoption is just starting. Yet, it is increasing exponentially. Add that to the limited supply and you would get a formula saying that Bitcoin's price will only increase by time. Obviously, this makes Bitcoin an excellent investment.

4- Bitcoin Is Secure

You can not counterfeit Bitcoin. You can not hack it. You do not even store it. So, it can not be stolen. In fact, it is secured by the most powerful supercomputer. This will attract more and more people to Bitcoin.

5- Bitcoin is Borderless and Convenient

You can send Bitcoin to anyone in the world like you can send it to your neighbor. You don't need the permission of any bank or agency. This makes Bitcoin more convenient than Fiat.

6- Bitcoin Is The Best Solution for The Unbanked

Almost two billion people do not have access to banks and similar financial services. Bitcoin can provide an excellent solution for such people.

7- Bitcoin Is The Gateway To The New Economy

A new economy is in the making. No doubt in that. Just look at all those ICOs. If you want to participate in this economy, you need to go through Bitcoin.

8- Bitcoin Is Opening the Door to Innovation

Many new technologies are being built on Bitcoins technology: the blockchain. For example, Factom is building a system on top of Bitcoin where data can be stored securely. This is just an example. People are coming up with more every day. Such innovations only add to Bitcoin's value.

9- Bitcoin Costs a Lot to Mine

Mining Bitcoin is difficult and costly. This means that each Bitcoin we mine stores all that electrical and intellectual energy spent in mining it. Moreover, keeping the distributed ledger has a similar cost too. This means that the value stored in each bitcoin is ever-increasing.


What Do You Think?

This article only summarizes the arguments I found from both sides of the debate. Each one of them should be subjected to critical thinking. Actually, I have my own opinion about them. I will express them in the comments like everyone.

So, which one of these arguments do you agree/disagree with? why? Please let us have a #discussion.


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Thank you for summing things up @sadekj. Nice opportunity to comment:

A bubble indeed

  1. This could be a valid point if it can be backed up with data. However, speculation and store of value are also uses for a currency.
  2. Price manipulation is most likely quite rife in bitcoin land (as can happen in fiat land). Would be interesting to see a study on it.
  3. Isn't this somewhat the case for most present currencies? Or rather, it is all based on trust, as pointed out by Philadelphia Federal Reserve Bank chief president, Patrick Harker just recently. Bitcoin is most certainly backed by many many parties who are very much invested in its future (developers, minders, exchanges, people who run the nodes on the network etc.)
  4. Software is indeed vulnerable to bugs and hacking, and this is perhaps one of the points I think is most valid. However, the hacking that is most often pointed to is not hacking of bitcoin, but supporting software, which is something all financial institutions are vulnerable to. And just like with fiat currency it is most certainly possible to let financial institutions take care of your bitcoins for you, if you are not able to secure them yourself.
  5. This is indeed a huge concern. It is hard to outright ban bitcoin, as it is a software enabled by cryptography on the internet, and there'd be many ways of avoiding bans. It is very possible to ban its official use though, which would greatly undermine its utility and leave it, more likely zcash or somesuch to the illegal and black markets. Seeing how for example Japan is instead regulating it, this does not seem to be a likely future though, not for all of the world anyway.
  6. This has apparently been researched and found invalid. See point 5 though.

Bitcoin is not a bubble

  1. Bitcoin with its huge mining pools might not be the best example of this, but there are plenty of other cryptocurrencies showing great potential.
  2. A limited supply also means that in the distant future the supply will start shrinking as people loose their coins. I don't really think it is so relevant whether it is constant or rising, as long as it is redictable (haven't thought this very well through though).
  3. Remember that bitcoin has competition though, but cryptocurrencies on the whole are indeed just starting.
  4. Bitcoin is software, software has bugs, why can it not be hacked?
  5. Replace "bitcoin" with "cryptocurrencies".
  6. Replace "bitcoin" with "cryptocurrencies".
  7. I am not so sure current ICO really are proof of a new economy.
  8. Very important point, but perhaps not so much an argument for the high price of a bitcoin.
  9. The economy behind mining has indeed fueled bitcoin and its use. It is not sustainable though.
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Thank you, @guttormf for the thoughtful comment. It could have been an article itself. 100% upvoted!

Of course, I disagree with some of your points. I will explain my views soon in separate comments. Then I will come back ant reply to your points.

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I didn't think it was "of course" that you disagree with me ;-)

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Yes.. that is right replace "bitcoin" with cryptocurrency. Bitcoin is intended as a prototype of blockchain technology. It supposed to be developed. Nice point of view :)

As I said in the post. Those arguments are a summary of what I found. They do not express my opinion. I will discuss my opinion here in the comments. To keep it digestible, I will talk about each argument in a separate comment.

I do NOT think Bitcoin is a bubble

I believe the reason that caused most naysayers to criticize Bitcoin is that they are evaluating it based on the assumption of the classical economy. Ironically, Bitcoin is meant to disrupt most of those assumptions!

1- Bitcoin Price Has Increased Much Faster Than its Use

Maybe this is somewhat true if you consider regular use only. However, if you consider that Bitcoin is the gateway to alt coins and to ICOs and the new economy, then Bitcoin is used a lot.
In addition, many big names are starting to accept Bitcoin as a payment method.
So, maybe speculators are paying an extra for Bitcoin now, but that is because they are seeing a very bright future. They haven't been wrong for 9 years now :)

2- Bitcoin Is Not Backed by Anyone

This is such an arrogant statement. Bitcoin is backed by the people. In fact, the philosophy behind bitcoin is that it should not be under the control of any central government. This is an advantage to BTC not the opposite.
In addition, the accounting side of bitcoin is more secure and transparent than any financial institute.

3- Bitcoin's Value Is Imaginary

No, it is not. Its value comes from being a currency and a safe store of value. All currencies are like this.

4- Bitcoin is Vulnerable To Hackers

Whoever says this does not understand Bitcoin. If a user (or an exchange) is hacked, that does not mean that Bitcoin was hacked. This is like saying that the USD can be forged because a theif was able to steal some $ from a not -carfeul person.

Really, people should educate themselves before giving opinions.

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You know, it isn't so attractive to vote on your comments when you upvote all of them yourself.

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I agree! But This is the only way I know to give them visibility! If I don't do that, they will be burried down and no one would read them. I have spent some good time researching and writing them and I don't want to see them go unnoticed!

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Then at least give others time to vote for them first :-)

5- The Governments Will Ban Bitcoin

1- No they would not. I know some governments tried that but most governments are forced to embrace BTC and the blockchain technology. Some of them already declared bitcoin to be legal like Japan. Some are trying to be a blockchain central in their respective are like Bahrain. Some countries are trying to grab a share of the BTC mining pie like Russia.

All These will force neighboring countries to follow. No one wants to be left behind.

6- Bitcoin is Mainly Used For Illegal Activities

No one can deny that BTC was used for illegal activities. However, it is far from the truth that it is only used for that!

The main use of BTC is to buy other cryptocurrencies. However, many new usages are emerging everyday. For example, recently, the real estate sector has been discovering the potential of BTC.

In addition, after BTC has been legalized in Japan, I expect its use their as a regular method will explode soon.

thx bro i upvoted you and wil follow you hope for the same:D i am also a trader investor

  ·  3년 전

Bitcoin can be both a bubble and not a bubble....if more people start treating it as an asset then it moves toward a bubble...if more people treat it as currency then it behave less like a bubble.

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That is a good point, @ka82.

In you opinion, what would make people treat it like an asset? and what would make people treat it like a currency?

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  ·  3년 전

In countries such as US, Europe and other countries who have "privileges" of better economy bitcoin/crypto are being treated as an asset, which could turn to an speculative bubbles.
At the same time, countries such as Venezuela and Zimbabwe who have economical crises Bitcoin obviously being treated as more like a currency than an asset....

In US people aren't concerned that they get less food with the same money tomorrow, in Venezuela they do.

However there are platforms that coming out that will help people (especially helpful in developed countries) to use their cryptos for generating some economic activities (i.e. using bitcoin as currency), instead of letting sit in their wallet for later price appreciation. Some platform that I know are:

syscoin.org
saltlending.com
Openbazaar.org

Bitcoin is becoming only a trusted store of value. Its cost structure and speed although improving remain behind others. But we need bitcoin to show the world that crypto can be safe and valuable before they dip there toe in the water of the alts "here be monsters" The alts are where I believe the true breakthroughs in utility will come from. Take Steem itself for example. But people have to be able to have trust in something. Stock traders frown down upon bonds but rush to treasuries the moment things get sour. I think that is the roll that Bitcoin is starting to fill as well as being the common gateway from all types of Fiat.

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Thank you, @whitesj40.

Bitcoin is becoming only a trusted store of value

I agree that: Bitcoin is becoming a trusted store of value. I disagree with the "Only". Bitcoin is becoming more and more popular as a payment method. We are so involved with alt coins, but most people only know bitcoin.

The alts are where I believe the true breakthroughs in utility will come from

Agreed.

yes, I do think, the bitcoin is popular side in the world.
thanks for share.
upvoted

very interesting post and to the point ! Puts things into perspective :)

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Thank you @peak.endrule.

Glad you liked it. Still, I would have loved it more if you could express your opinion about some of the arguments.

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you are right . I think maybe its "used" at times as a tool by some to make money but i don't think its a bubble . Cryptocurrency is the future i am 70 % certain of it :)

Very interesting and informative post shared followed . @sadekj Wish you the best with all your future endeavors.

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