Key Post Bitcoin is a clearly identifiable economic bubble

Firefly said:
Interesting article here in Bloomberg about the Bitcoin Bubble...

https://www.bloomberg.com/news/feat...-ridiculous-blockchain-is-dangerous-paul-ford
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Interesting to an extent insofar that it mirrors the views of those who say it's all a bubble, worth nothing, just a puzzle, hot-air, it will return to zero, etc.

However it makes two typical points that reflects that the author is simply not grasping the concept, or at least the value inherent in the concept, in my opinion.
Before that, to be fair to the ABC's, there is a lot of noise around Bitcoin - 'it will replace fiat', 'destroy central banks', 'go to $100,000 or $1m'etc. And as far as going to $100,000 or $1m theoretically it could. But theoretically so could the price of cabbage, or even so could the price of a tulip!
So the question is often asked, what gives it any 'intrinsic' value? Personally, I think all value is subjective and effectively in the eye of the buyer and seller.
It's why my wife will pay you €50 to get rid of my record collection out of the attic, even though to me it is clearly worth €10,000. Or why someone will pay $300,000 for a Gibson guitar just because it was owned by Elvis, when the same guitar is mass produced and retails between €2,000 - €3,000. Or why a Da Vinci painting of Christ will auction for $450m (increasing from $200m in the space of 20mins) even though it's possible to commission a top artist for €15,000 - €20,000 to paint a replica, which arguably will be of superior quality.
Of course some of these things have associative, sentimental, historical and artistic value. But none of these values actually place a $ amount on that value.

The market of buyers and sellers do.

So back to the author, the first point that he makes that I disagree with is his comparison with Bitcoin with the .com bubble. This is not to say that Bitcoin is not in a bubble, for the record I don't know if it is or not, certainly it is showing the characteristics of bubble. But the .com comparison fails insofar as well, some 20yrs+ .com is still here. The .com phenomena simply emerged as something other than what the market speculators thought it to be. The author speculates that Bitcoin could still be here in a decade from now.
The second point is the references to ideology - that ideology is rarely a sustainable value. I disagree, ideology surrounds us all the time. Religious faiths are all ideological as are political doctrines, many of which have failed or on the fringes of society. Many are however, dominant and sustaining real value over the centuries.I happen to think there is real value in the teachings of Christ around forgiveness, pursuing peace, for example. Do I think he walked on water, rose from the dead and went to heaven - no. But every ideology probably needs its hook lines, and 'the end of central banks' is as good as any that I've heard in a long time - not quite 'forgive them Lord for they do not know what they do', but a ear-pricking for lots of people.
The € currency is an ideological project, when you think about it, we gave up our sovereignty on the concept of an ever closer Europe without ever really questioning if it was good idea! The US dollar as a world reserve currency is also ideological.
There is ideology attached to Bitcoin and crypto, the question is does that ideology hold any value?
If you are like me and think the concept of holding money and being able to transfer money securely outside of the centralised banking system is a good idea, then Bitcoin is a great idea. If you don't then it doesn't.
Currently the market values the Bitcoin concept at circa €7-8000 per unit. Or $140bn in total. If Bitcoin is backed by anything, it's backed by $140bn!
 
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TheBigShort said:
So the question is often asked, what gives it any 'intrinsic' value? Personally, I think all value is subjective and effectively in the eye of the buyer and seller.
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I agree, but I would have thought that its price would have settled at this stage, particularly since it is just meant to be a currency (rather than a share / investment).

My own belief is that Bitcoin will stick around, but that will really depend on whether people use it do buy stuff rather than just holding it in the hope it increases in value. Regards the price, I think it will be ultimately pegged to something like gold - the same as, a multiple of or a fraction of.
 
It’s a matter of when, not if, the Bitcoin bubble will pop, according to Allianz Global Investors.

“In our view, its intrinsic value must be zero,” Stefan Hofrichter, the company’s head of global economics and strategy, wrote in a recent web post. “A bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream.”

https://www.bloomberg.com/news/arti...hless-bubble-may-pop-soon-allianz-global-says
 
Firefly said:
It’s a matter of when, not if, the Bitcoin bubble will pop, according to Allianz Global Investors.

“In our view, its intrinsic value must be zero,” Stefan Hofrichter, the company’s head of global economics and strategy, wrote in a recent web post. “A bitcoin is a claim on nobody – in contrast to, for instance, sovereign bonds, equities or paper money – and it does not generate any income stream.”

https://www.bloomberg.com/news/arti...hless-bubble-may-pop-soon-allianz-global-says
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Its a fair point, that is has no claim on nobody. Unlike sovereign bonds, equities or paper money which all promise to pay.
But that is where I think the misunderstanding kicks in. Bitcoin, or cryptocurrency, doesn't require a promise to pay. It is a trustless system, hence no need for over-arching authorities to stand over it and promise anything.

When that concept is finally understood, commentators like the above might think differently.
 
Behind that 'promise' lies ugly things like compulsion, and coercive laws that are not generally applied equally.
It's one thing to break that promise to punters, but it's quite another to break that promise to the "important people".
 
Good article. I particularly liked this bit

This leaves the intermediate scenario where cryptocurrencies partially replace fiat money. Bitcoin is already used for certain types of transactions. The central banks might also start holding cryptocurrencies as reserves, or large retailers like Amazon may begin accepting cryptocurrencies for transactions.


Unlikely. I don't think many people would like to earn their salaries in dollars, pay rent in Bitcoin, buy groceries with Ethereum and compensate the hairdresser in Ripple. We want to use a single currency, one that provides price stability and ease of transactions. I want to know how large my monthly mortgage payment is, and will be, as a fraction of my salary. This means using the same money for everything. If fiat money competes with Bitcoin or any of the cryptocurrencies, one will win. That leaves the two extreme scenarios.
 
He has written other good articles on the topic

https://voxeu.org/article/cryptocurrencies-dont-make-sense

He summarises the arguments very well

Privacy and security
That leaves privacy and security.

Cash is 100% anonymous, but one is at some risk of theft. Electronic transactions are not anonymous, but are safer.

While some cryptocurrencies promise anonymity, the most popular, Bitcoin does not, unless one is really careful in hiding one's tracks using skills that are only available to a small group of users. The reason is that transaction records on the blockchain cannot be changed or deleted and are therefore searchable.

Meanwhile, not a day passes without reports of theft from cryptocurrency investors. The best advice is to keep one's private key on an air-gapped burner laptop.

Cash and electronic money are also subject to theft. Still, there is no need for a private key with cash transactions and keys are much less important for electronic cash transactions. There are multiple layers of security that protect us. The fiat money of non-expert users, provided they take basic precautions, is very safe.

I feel quite confident in doing online banking without resorting to an air-gapped burner laptop.

Cryptocurrencies are only safe from theft if one is expert and takes elaborate precautions. We are much more likely to be a victim of a crime with cryptocurrencies than cash or electronic money.
 
I believe many currencies will coexist Fiat and Crypto and it will be so easy to switch between them, it will be barely noticeable.
Tap to pay, the app will decide what to spend and how to pay if you are not bothered.

You can denominate your mortgage as a fraction of your salary, or choose to make things more complicated. Involve your house value, your pension, your savings in the calculations.
Pocket accounting and budgeting apps will only get better.

And as for the much discussed Privacy and Security, my bank account is safer than the private key, let's just repeat ourselves...
Tell that to the Venezuelans!

You can buy a hardware wallet for like 50e, write down your seed and then securing it is as simple as hiding cash under the mattress... Please not under the bed and not in the socks drawer :D
 
Bitcoin drops 12% to below $5,000

Bitcoin hit a low of $4,883.09, bringing its losses to more than 22 percent in the past seven days and more than 65 percent this year, according to data from CoinDesk.

https://www.cnbc.com/2018/11/19/bitcoin-skids-to-a-13-month-low-nearing-5000.html

Coeure also said he agrees with BIS head Agustin Carstens, who in June said, "Cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster."
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It looks like the fad that was bitcoin is working it's way to zero, with nothing actually built of use from it as yet.

We no longer hear from the people that re-mortgaged their homes and invested life savings in bitcoin this time last year.

Even this forum has become very quiet.

For the people that defended it previously does the argument still hold? genuinely curious if the belief is still there?
 
It's interesting to see that transaction volumes have crept up as of late, but is this some of the hodlers diverging?
 
azerogo said:
We no longer hear from the people that re-mortgaged their homes and invested life savings in bitcoin this time last year.
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Media won't ignore whacky stories like that. Those guys were few and far between. Nobody could consider borrowing to invest a wise move.

azerogo said:
Even this forum has become very quiet.
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Sure, in the same way as there was hardly any chatter here about crypto pre-November 2017 but the tech was still being worked on.

azerogo said:
Coeure also said he agrees with BIS head Agustin Carstens, who in June said, "Cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme and an environmental disaster."
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Coeure and Carstens are central bankers. They're never going to be supportive of something that goes against the centralised distribution and management of money. Last week, Christine Lagarde of the IMF suggested that Central Bankers had to consider digital currency seriously or get left behind. Of course, she still disses decentralised crypto but its decentralized crypto that brought her consideration around to this point.

azerogo said:
It looks like the fad that was bitcoin is working it's way to zero, with nothing actually built of use from it as yet. For the people that defended it previously does the argument still hold? genuinely curious if the belief is still there?
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What becomes of Bitcoin remains to be seen (as it's the pre-cursor to a host of crypto projects that have improved upon it in many ways). However, it's thanks to Bitcoin that crypto and blockchain projects have emerged. As I've always stated here, the speculation has to be decoupled from the tech. Those working on the tech will continue to do so. Many in the industry were distracted by the hype from Nov-Jan and once it died down, they've had the opportunity to go back and concentrate on building the tech.
Crypto didn't emerge via the old established money. However, it will now be firmly controlled by them. This drop - which seems to have been spurred by the SEC's actions on Friday in relation to ICO's - allows them an opportunity to take full control. I'd imagine there will be little bullish activity for quite some time. ETF's will be approved and institutional money will come in - but it will be a slow burner. However, ultimately I'd expect another pump - this time with institutional money - but that's not going to happen in the short term.
 
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tecate said:
ETF's will be approved and institutional money will come in - but it will be a slow burner. However, ultimately I'd expect another pump - this time with institutional money - but that's not going to happen in the short term.
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A serious institution should not set up an ETF or put money into Bitcoin.

But there is a difference between should not and will not. An institution might be tempted to exploit the vulnerable by launching a BTC ETF. And such an ETF could give a false credibility to BTC.

tecate said:
What becomes of Bitcoin remains to be seen (as it's the pre-cursor to a host of crypto projects that have improved upon it in many ways). However, it's thanks to Bitcoin that crypto and blockchain projects have emerged.
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This is a very important point. As there are better products out there than BTC, then maybe it's time for BTC to exit stage left and let a better product replace it at a fair price. Maybe one of the stable coins.


Brendan
 
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