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Is Bitcoin a Bubble? Differing Perspectives



September 20, 2017 – Comments (0)

Bitcoin, and especially its descendents the altcoins, don’t have a consistently good name among traditional investors. We have only to look at the crash that happened last Monday due to news that China is banning ICOs (cryptocurrencies version’ of IPOs) to see that the market can suffer catastrophic losses as a whole in a single news cycle. 


But is this latest event just another sign that crypto is a bubble? After all, we hear the Bitcoin Bubble phase quite a lot and from many different sources. But repetition of a catchphrase is far from consensus. To read the diverse opinions of top finance blogs, you’ll see that many think that crypto is the latest wave of investing, one still on the lunatic fringe, but not one to be avoided or ignored. 


It’s hard to reconcile these two perspectives without looking deeper at what cryptocurrencies actually are. Below we’ll build two cases: 1) cryptocurrencies are a bubble, and 2) Cryptocurrencies are not a bubble. It’ll be up to you to decide the answer for yourself. 


Cryptocurrencies ARE a Bubble 

Did you know that there are more than 800 alternative tokens to Bitcoin, most of which have sprung to life in the past year? Did you also know that more than ¼ of these projects are already defunct? The fact is that ICOs bring it too much money too quickly (sometimes hundreds of millions in less than an hour) for scammers not to start a’scamming. Numerous tokens are introduced to the market with no working product and no distinct value proposition. What sells them are fancy graphics, marketing, and guerilla hype campaigns on forums like Reddit. Unregulated, the companies that find money pouring in for their worthless tokens are under no obligation not to pump, dump, and disappear. This happens all too frequently. 


Controversy surrounding value creators like Tether (who links 1 Tether to 1 real world US Dollar, though not in a way that is audited or transparent) also create the distinct possibility that sustained growth for Bitcoin and its competitors may, partially, have been paid for with fake money. If this is true, it will certainly raise the price temporarily, but will only create a bubble in the end. This Wild West of an industry is the opposite of what’s described in this idiot-proof investing Betterment review. Crypto investors, most of them not professionals, are open to huge risk. With so little smart money in the game, the opportunities for market wide crashes are many. 

Cryptocurrencies ARE NOT a Bubble

On the other hand, the best cryptocurrencies are truly revolutionary. Blockchain technology, the innovation upon which all of these tokens are based, is already changing global banking, and stands to disrupt many other industries as well. Furthermore, platforms like Ethereum are seeing tremendous uptake from major players. Microsoft and VISA, to name just two, are already using the Ethereum network. Though the traditional metrics of value investing to not apply in cryptospace, the best coins have real world use cases, are ever adding to their value propositions, and have many other true evidences of real value. 


Furthermore, the entire crypto market capacity at the time of this writing is just over $150 billion. Currently, most of its investors are white males between the age of 20 and 40. It’s difficult to buy Bitcoin, not to mention altcoins, and as major exchanges like Coinbase are swamped with new account applications, the majority of would-be investors are not able to put their money into the market. As more of these people enter, it’s inevitable that greater wealth will be added to the industry, possibly dwarfing what is there now. 


It’s up to you to decide your opinion, as well as where to put your money. The alternative perspectives speak to much more turbulence in crypto’s future, but it’s hard to count them out, even with all the difficulties this young industry continues to experience. 

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