You were being sarcastic but I agree - it's a new take.
The author is saying crytocurrencies shouldn't be about their valuation, yet that's the sole focus of attention (in the media) these days.
I'm bearish on Bitcoin yet bullish on Ethereum because of other factors besides their valuation such as roadmap, potential and usability.
Usability is also the biggest complaint of the author. It's one of the biggest factors preventing mass adoption.
ETH has never been hacked. In fact, it can't be hacked. What you mean to say is that DAPPs can be hacked. DAPP's can have unintended functionality that can be exploited, but that has nothing to do with ETH. It would be like going back to the mid 90s and saying, "this World Wide Web thing will never work because it keeps getting hacked." Doesn't make any sense, it illustrates your unfamiliarity with the subject.
Eth hasn't been hacked, but the technical parties developing it have yet to deliver a smart contract platform which is reasonable to write a verifiable contract on. And as a consequence: contracts are being exploited either due to implementation bugs in the language or code that has no obvious testing or verification plan.
In many ways this is worse. There is a lack of competence in executing on the single most important feature of Etherium: it's ability to home other cryptocurrency.
And without this, what exactly is the value eth adds? To me, this is an attempt to control and force the ecosystem. It's there to facilitate overvalued and underveted ICos and sidecar it as a revenue stream.
It's not there to build something sustainable, it's there to extract value. If they cared about sustainability, the lack of rigor and correcness in eth contract building tools would be seen as a crisis and it would be much closer to resolution.
"On Wednesday 19th July, 2017 a bug found in the multi-signature wallet ("multi-sig") code used as part of Parity Wallet software was exploited by parties unknown. As of the time of writing, three wallet accounts holding large balances of ETH have been compromised and the balances moved into accounts held by the attacker."
Parity accounts for roughly 5,000 of all Ethereum nodes (of which there is no "official" "1st-party" implementation) [0]. As a result of being so popular, Parity users were collectively robbed of $30,000,000 of Ether due to the multisignature (typically used to secure funds versus single-signature-required transacting) smart contract bug.
There are a few altcoins out there focusing on ease of use and trying to bring in users/early adopters who are not just crypto-junkies. The ones I can think off of the top of my head are:
- DASH (Digital Cash)
- Vertcoin
- NAVcoin
Of those, DASH is probably the most likely in my opinion to eventually challenge bitcoin or ETH.
I thought deep investigation into 'tulip mania' revealed it wasn't nearly as severe as people claimed. If bitcoin really is worthless, then it would have an unprecedented place in bubble history.
Regardless of whether tulip references are in a bubble, there still remains intrinsic value in a decentralized system that can transfer a tulip reference halfway around the world without fees or government interference.
I consider this clickbait at this point.
This is the exact same thing that has been said during every single boom in Bitcoin's history.
You may like Bitcoin or not, but the concepts of cryptocurrencies and the technical development that the blockchain represents are here to stay. They are being adopted left and right by the banking sector all around the world.
Saying cryptocurrencies have technical/economic value and that they are in a bubble of inflated value can both be true.
I've seen it likened to the Dot com bubble. Sure several groundbreaking titans of the Internet were founded during that time. They are valued as major players in the world economy. But there were many more that were inflated and the sector as a whole was inflated.
Now, if you're a savvy enough investor to be able to pick the eventual winners during a bubble, you'll come out great even after the crash. But if not, then you're just gambling. And the house will eventually win.
"... the concepts of cryptocurrencies and the technical development that the blockchain represents are here to stay. They are being adopted left and right by the banking sector all around the world."
Fully agree - I don't agree however with how the most popular (which is the reason they're popular)a and how they are incentivized to transfer wealth unreasonably, wealth transferred weighted to the earlier you're an adopter. It's a global, decentralized Ponzi-like scheme. The banking sector are 'adopting' them as any large institution has a budget to try to understand something. All Fortune 1000 companies have money to play around and they'll need to be prepared for blockchain - however don't confuse that with a vote specifically for Bitcoin or Ethereum's Ether.
I love how if you think something is a bubble, you can just compare it to any bubble in the past, ignoring all of the nuances.
If you want a parallel to Tulip Mania, you have Beanie Babies. It was pure asset inflation for the sake of asset inflation. There was no innovation (except in markets for distribution of the asset), just wild speculation on things that were almost completely useless.
I do think cryptocurrency is in a bubble, but I see it far closer to Railway Mania or the Dot Com bubble. In both cases there is a clear cut demonstration of potential utility even pre-bubble, meaning there very likely a post-bubble future for the technology, even if the landscape changes drastically in the meantime. Railway mania in particular had plenty of failures, but it also had many companies that were viable but just overvalued, and even beyond that, there were plenty of companies that thrived post bubble.
I have my own speculations as to who will come out alive when the bubble crashes, and it certainly wont be anything tied to "smart" contracts, which has been the source of most of the ridiculous market behavior as of late (ERC20 especially). Others will survive on their merits, and I'll say this much: If it isn't low latency, low energy consumption, highly liquid, and traceable, it's as good as dead.
I am not sure I would compare the invention of the internet or the development of railways to cryptocurrencies. At best, cryptocurrencies are a very minor technological development.
> Others will survive on their merits, and I'll say this much: If it isn't low latency, low energy consumption, highly liquid, and traceable, it's as good as dead.
What are a few things that pass those criterion and hence have a chance at living in your estimation?
Internet companies are the tulip mania of the 21st century. Or at least that's what I was being told at the start of the 21st century. These people should get together and settle on the tulip for the 21st century.
As with the Internet company scenario, the tulip forecast short-term is partially correct. Long-term, as with the Internet, what comes next will be far, far more valuable and globally so. Blockchain technology will touch, essentially, every person on the planet. It doesn't matter if the successful rider is Bitcoin or CoinX, just as it didn't matter if it was Sun Microsystems or Webvan or Dr Koop.com or Lycos that made the most off the potential of the Internet.
We can see the path from commodity currency, to paper, to fiat was a long and messy road history makes this clear. While in all likelihood crypto may very well supplant fiat the likelihood it'll happen in 1-2 generations is slim.
Furthermore if history is a guide the replacement of Fiat by crypto will likely happen by mistake, or in such a small way few will notice.
What are the obstacles to replacing Fiat? I think people underestimate the combination of payment method and value, but I also just haven't heard a good argument against.
BTC was the one and only crypto currency to exist I'd think it has some value. However when there are many crypto currencies why does BTC have any value?
Eg if ETH starts being used for most transactions, and BTC started crashing in value would anyone feel a need to keep it?
Because both currencies have monopoly in two highly developed economies. I guarantee you that the exact moment the government crashes or drops support for the currency, that currency becomes worth zero. Happened many times in history. However, I bet the chance of either US or EU collapsing is tiny.
Because the Euro and the US Dollar are legal tender in their respective jurisdictions, thus giving them a competitive edge over other types of money, and — perhaps more importantly — because capital gains are calculated using each currency as a reference in the jurisdiction where it’s legal tender.
So, if you invest in Euros in the US, and the dollar falls relative to the Euro, you owe money to the IRS — and vice verse for the Euro in Euro-countries. It’s difficult for competing currencies to gain traction when you owe money if the legal tender drops in value (relative to the competing currency).
Not sure if this is rethorical, but it's a great question. In hacker-news-pedantry tradition i will answer:
A. A dollar bill represents an accounting entry in a bank account. Banks are the third party that facilitate trust and the rules by which 2 actors trade.
B. Dollar bills are legal tender for the payment of taxes. They are enforced by government, which is the sole legal arbiter of coercive action. Taxation requires every citizen to hold a reserve of state currency.
C. Due to the specialized printing process dollar bills are, at least theoretically, hard to counterfeit.
D. Ubiquity as trading mechanism, barter requires double coincidence of wants (rare) or interpersonal credit (lack of third party oversight to guarantee fair play). When holding assets, these can deprecate (or appreciate) in value, and would need to be converted in cash holdings to avoid the impracticalities of barter exchange.
E. They are an convenient way of turning digital entries into tangible user objects, since they hardly take any space.
I'm sure you could keep the list going. Notice how cryptocurrencies satisfy a lot of those conditions. Also notice how bitcoin in particular fails at a number of them.
I've lived and worked in many countries, I know why sovereign currencies exist.
I don't understand your point. I can understand we will have multiple crypto currencies, but if there are unlimited number of currencies, why would any of them have any value?
If BTC has any value at all, then all other cryptocurrencies have at least some minimum value solely as a possible redundacy or replacement in case of emergency.
That's not the whole story though, some of these other cryptos also serve as a testbed for new concepts & improvements, differ in particular ways to better suit a specific purpose, target different markets, have different core values or are alltogether alternate technical implementations.
Each one of those nuances adds some deegree of value. As with any stock or other economic asset, their price today is not necessarily reflecting the value it has for practical use today, but rather the possibility that it will become necessary or more dominant in the future.
1) First mover advantage. Bitcoin is the easiest crypto currency to buy or sell for fiat. Every crypto exchange/atm/payment gateway supports Bitcoin and maybe some altcoins like Ether or Litecoin. On crypto exchanges, Bitcoin is always the base market pair. Bitcoin is the oldest, most battle tested crypto, so people expect it to be the most secure.
2) Economics. Bitcoin is deflationary. There will only ever be 21m Bitcoins. Ethereum does not have a hard cap on the max number of Ethers. Each coin has its own economics. Smart investors will understand the economics behind each coin they buy into. Otherwise you end up buying Ripple at 40 cents each thinking its a bargain...
Tulip mania was caused by the government changing futures contracts into options. The mania happened in these financial instruments, not actual tulip bulb prices.
If you’ve been in bitcoin long enough you’ve seen several boom/bust cycles, so it would hardly be surprising. And it’s auite unpredictable. Suppose the US enacted laws similar to what China just did, it could cause a crash. But I still thing they will always have some value.
> Governments don't create bubbles. Human nature does.
And yet, OP just provided evidence of a case where, previously, we assumed a specific asset bubble was caused by "human nature", but in fact it looks like it was created through the government inadvertently creating risk-free speculation in options contracts for this very asset.
The wikipedia article lists several competing and complementing explanations without elevating one as the one and only true one. In systems with strong feedback it is very hard to know what is cause, what is effect and what was just a coincident.
Don't rely on Wikipedia to tell you what the true explanation is. From the linked section:
> If the price rose above 100 guilders, the speculator would pocket the difference as profit. If the price remained low, the speculator could void the contract for only 3½ guilders.
The Dutch government enabled risk-free speculation in tulip options contracts (formerly futures contracts). How could the price of such a contract not rise under these circumstances?
Sounds an awful more like the ways leverage (for wealthy speculators) is protected in our society. That has implications bforbthe stock market more than it does Bitcoin.
Do we know about how much Bitcoin trading is done on leverage? I suspect it's relatively low (as securities go).
I don’t see any parallel in our currency financial system. If you know an investment where losses are limited to, at most, 3.5% and potential profit is unlimited, please let me know.
you are correct that many (if not most) bubbles and crisis are created by governments, but in some of these cases this involves participants trying to avoid the government action.
in these cases, bitcoin could be an example of that
The Bitcoin bubble could still be the result of government action even though Bitcoin is not a creature of government. For example, if China is preventing its citizens from moving money offshore that action could result in a Bitcoin bubble as Chinese citizens use Bitcoin to work around government restrictions. Now that China is clamping down, the bubble (if there is one) could pop.
The same thing has happened with Chinese buyers driving up the price of random short domain names.
Your argument boils down to: Tulip Mania was caused by the govt, BtC isn't a govt system, therefore BtC can't be a bubble.
Tulip Mania gets referenced because it's ridiculous on its face, but what about the Dot-com Bubble or Railway Mania? [1]
Economic systems are a combination of markets and regulatory frameworks, and you can't always blame regulations when the economics say things you don't want them to. It's flatly impossible to isolate the two: the market is shaped by regulations and visa versa.
No, that's not the argument made. It is a little bit more subtle than that. OP says that the roots of the first ever recorded bubble were in inept regulatory action. He adds that it was financial instruments underlaid by bulb prices that were inflated, not the actual bulb prices. The subtext here is that the analogy used by the article is not fitting since they are talking about bitcoin's price, not some financial instruments that takes them as input.
Nowhere does OP says that a Bitcoin bubble is impossible. He merely explains that it is interventionism in free markets that has historically been the root cause of many bubbles. Government intervention for which government intervention is required to correct the nefarious effect, in return begging for even more intervention, and so on... ad nauseam. There's a big difference between this thesis and the one you comment.
>Economic systems are a combination of markets and regulatory frameworks
That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead it you want it therefore excluding others instead of being as general as possible. A better one would be simply: "an economic system is a configuration in which the five factors of production interact".
> you can't always blame regulations when the economics say things you don't want them to.
Again, that's not what OP says. He never said that free markets are precluded from doing harm. Only that government intervention is even more inefficient and harmful but in ways which are far greater to anticipate until it goes boom. Why? Because artificially changing the parameters of a complex systems creates tons of side effects, including hidden incentive feedback loops which prompts some actors to adopt behavior that are locally optimal but takes us into directions we do not want.
>That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead it you want it therefore excluding others instead of being as general as possible.
should be:
That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead you would want it to be as general as possible so as to be the common denominator between different economic schools of thoughts, or even eras.
> Tulip mania was caused by the government changing futures contracts into options. The mania happened in these financial instruments, not actual tulip bulb prices.
This is obviously wrong: even accepting the premise of Thompson's paper, the popping of the bubble is blamed on what you've referred to but the mania (the inflated asset prices) existed for a very long time prior to that. In retrospect, the method of popping the bubble is really the least interesting part of that whole phenomenon (it's a given that those prices were going to crash) although I'm sure the people who experienced it did not feel that way.
Stipulating for the moment that that chart is a chart, the phenomenon you sited as causing the tulip mania would have had to travel backward in time at least a year in order to do it. Perhaps we should agree that that is not reasonable.
(I agree with your more important point that tulip mania and bitcoin are quite different)
> Many bubbles are caused by government actions. Our own housing bubble was fomented by numerous bad policies.
If the "government action" in question is deregulation that allows the market to blow itself up, do you want to chalk that event up to market failure or government action?
If by "dereguation" you mean creating government agencies like Freddie Mac and Fannie Mae, which sole purpose was dissorting mortgage market by allowing banks to offset risk from subprime loans, then yes, last crysis was caused by deregulation :) And of course road to hell is paved with good intentions: government was only trying to make houses more affordable to even the poorest Americans.
And even without such special-purpose institutions government can cause market bubbles by nothing more than its "monetary policy" and artificially induced inflation.
I always found it astounding, that all those extremists rather prefer to dwell in this nightmarish bureaucratic western democracies, while paradises are abundant. North Korea, if you fance the Communistic spectrum, somalia if you are a libertarian and plenty of religious outliers to live the life of ones dreams. And yet, here they are..
The are many many angles to look at cryptocurrencies that make that assertion not true. For example, beyond the ICO mania, cryptocurrencies make the dream of a global Kickstarter possible. Many people from developed countries don't realize how difficult is to have something like this globally.
Another important difference is that part of the community is self sustainable and doesn't depend on external funding.
> The main problem with ICOs is that there are not many independent auditing organisations.
That is right but we are talking about a "thing" that is completely new. Future ICOs will have more due diligence, that is natural and it is unfeasible that they can continue with just a whitepaper in place. BTW, one sector in my company works specifically with ICOs and we are working with some real companies, doing and selling real products, and they plan to launch their ICOs in the next 6 months.
Bitcoin has existed for eight years[0] at this point, other cryptocurrencies, such as litecoin, have existed for six years[1]. Tulip mania was fairly short lived with its peak lasting only a few months (November to May)[2].
Yes, the hype is overwhelming but I think tulip mania is bad comparison, a better comparison would be AI winters or tech bubbles.
Tulips had existed for a long time too. Neither tulips nor bitcoin are worthless, both are/were just extremely over valued. The current surge in bitcoin pricing has only really started from May of this year.
The last time this happened with bitcoin about 4 years ago the surge only lasted a couple of months.
Tulip supply is inflationary since tulips create more tulips. Bitcoin is more similar to the market over Superman #1 than Tulips, as Bitcoin has a known and fixed supply. However neither Superman #1 nor Tulips are not as liquid or as difficult to counterfeit as Bitcoin. In fact there has never existed a collectible as difficult to counterfeit as Bitcoin.
Perhaps pedantic, but Bitcoin as a tradable instrument is really only about 7 years, starting in July 2010. Otherwise you'd have to talk about how long tulips have existed.
Bitcoin certainly has an intrinsic value (because it is a globally accessible medium of exchange). However just like gold its value is also most likely way above its intrinsic value. The intrinsic value of gold primarily consists of industrial applications + jewelry. Compare the price of 1kg of gold to the price of 1kg of palladium: It's $42k vs $29.5k, although palladium is much more important for industrial applications and less common in the earth's crust (https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth...). So why does gold have a much higher price? Because people continue to believe in it as a way to store value. The same thing is happening with bitcoin. As long as people believe bitcoin will be useful as an asset the price will stay high. But because of that, bitcoin is a speculative asset just like gold.
I seem to recall that the Lakota people and specifically Black Elk would refer to gold as "the yellow metal that drives the wasichus" [white people] "crazy." They had no use for it whatsoever, so its value to them was 0.
If we look at all of history up until recent times (let's say until 1971), currencies were simply commodities with certain properties. The properties that made a commodity a good currency were portability, uniformity, divisibility and durability.
Commodities have value because they are useful. A pear is useful because I can eat it. A shirt is useful because I can wear it. Gold is useful because I can use it to conduct electricity or have my tooth filled.
Since gold is portable, uniform, divisible and durable, it makes a good currency too. Up until 1971, people carried around little pieces of paper (even more portable than gold) redeemable for gold as a kind of currency.
Cryptocoins are worthless. They have no value. The proponents of cryptocoins cast about the world looking for commodities with value to compare cryptocoins to and found none.
But then they came across the post-1971 dollar/euro. It is not immediately clear why these pieces of paper are being used post-1971. Seizing on this confusion, the cryptocoin advocates point to the one thing in the world they could find without obvious value and say "we're just like this - but better".
Another gulf of confusion they exploit - they tell us technical people that this has value for financial reasons we wouldn't understand as technical people. Then they go to the financial people and tell them this blockchain technology is too complex for them to understand, but it's valuable. As few people have a foot in both worlds, it's a gulf for this scam to walk into.
The market cap for Bitcoins, Ethereum, Ripple etc. is $137 billion which is absurd. Dogecoin is supposed to be worth $100 million despite its creator coming out and saying it was a joke and this valuation is absurd. Charlie Munger, Warren Buffett, Jamie Dimon all have noted how Bitcoin is, as Munger puts it, "rat poison".
I witnessed the subprime mortgage bubble in 2008, the dot-com bubble in 2000, and now we have another one. Whereas Pets.com or a suburban development had some value, albeit overinflated, the $130 billion crypto"currency" market cap is absurd. It is going to crash to near the $0 mark at some point. As Keynes noted though, markets can remain irrational longer than you and I can remain solvent.
What you describe (money as proxy for commodity) is one school of thought that is increasingly under attack in academic circles.
See for instance Money by Eric Lonergan; Debt by David Graeber; Money, The Unauthorized Biography by Felix Martin; Theory Of The Monetary Circuit by Augusto Graziani; Soft Currency Economics by Warren Mossler; Creating Economic Order by Michael Hudson; Debt and Economic Renewal in the Ancient Near East by Michael Hudson.
These argue that accounting systems (and even writing, according to some) grew out of interpersonal debt/credit relations. Money then grew out of these accounting systems, as a token representation of the abstract accounting entries. In this view, money is fundamentally a kind of social contract, rather than a representation of some stored potential trade-good.
Hacker News teaches me new things daily, see I thought Bitcoin was a decentralized payment network, that is a solution to a class of distributed network communication problems known as Byzantine generals problem.
I did not realize Bitcoin was actually a Plant or more specifically a flowers bulb. I have been using computers my whole life, I had no clue I could run flowers on my machine, also flowers would allow me to create value using electricity, and send value over TCP/IP without a trusted third party.
Go ahead and sell your bitcoin or whatever the fuck you want to do because your clearly too dumb to understand a protocol, or the abilities a protocol can provide.
Wait a minute Bitcoin can't be a flower, I mean it doesn't die during the winter, also my cat has never tried to eat it.
China is already clamping down on BTC. Wait till the US intelligence agencies find that it's being used by ISIS (or some other villain du jour) to fund/support domestic terrorism. When Coinbase and other exchanges are regulated out of existence and no US-based corporation can legally transact in BTC, the price of BTC against major currencies will collapse.
Ignoring the price of BTC, I would bet against Bitcoin purely on technical grounds. If the transaction fee history is correct [1], then it would suggest that the economic feasibility of Bitcoin as a payment service diminishes as it scales, and, with a peak mean transaction fee of nearly $9 USD last month, the blockchain cannot even support its own current popularity.
I asked this question in another thread but really haven't seen a satisfactory response yet:
David Karpeles admitted at trial to running bots on Mt. Gox, and such bots were implicated in the rise of Bitcoin's price up to $1000 in 2013. Bitcoin has experienced a similar jump in value over the past year. If Mt. Gox successfully manipulated the price of Bitcoin using bots in the past, how do we know other exchanges aren't doing the exact same thing right now?
Don't get me wrong, I think there is potential value in Bitcoin as a distributed/frictionless method of money transfer, however as an asset/investment I think it's extremely risky and I'm not necessarily sure the run up to $4000 reflects its underlying value: the ecosystem is largely unregulated and as such there is a greater risk of fraudulent activity and manipulation that would not be permitted under a regulated market. Especially if the pseudonymous nature of Bitcoin transactions makes such manipulation harder to detect.
I am curious if anyone who has recently put money into Bitcoin has thought about this, and if so, what made them to decide to invest anyway? Am I just being paranoid?
«how do we know other exchanges aren't doing the exact same thing right now»
It's very simple. Before 2013 MtGox was the largest Bitcoin exchange in the world with the most volume (something like 80-90% of the market—I don't remember the exact numbers). They effectively defined the price and the bot could control it.
Nowadays there are dozens/hundreds of exchanges around the world. One bot trying to increase the price on one exchange would get severely arbitraged through other exchanges, and the cheating exchange would be quickly driven into insolvency.
Also Mark Karpeles was a sole proprietor of a private company. He had free reigns and no one to answer to. It was easy for him to decide to run this fraudulent bot. The chance of the same illegal manipulation happening at very high profiles exchanges like Coinbase/GDAX or Gemini who are VC-funded and run by respectable executives is very low.
So you think there's zero chance of collusion between exchanges as well? Isn't there some evidence that bots are currently active on major exchanges? I keep hearing about suspicious activity on Bitfenix... aren't they one of the largest exchanges?
> The chance of the same illegal manipulation happening at very high profiles exchanges like Coinbase/GDAX or Gemini who are VC-funded and run by respectable executives is very low.
Yeah, I don't expect this to be occurring at US companies who presumably could be prosecuted for fraud. But what about other companies that are based in countries with less regulation (or with regulators that could be paid to look the other way)?
The Bitcoin market cap grew from $1 billion in 2013 to $65 billion today. The larger it gets and the more exchanges exist, the more difficult it becomes to control/cheat the price with a fraudulent bot like MtGox did.
You seem to be confusing legitimate bots (written by traders to use an exchange's API) with the MtGox fraudulent bot (which was using fake dollars injected in the trading engine by Karpeles). These are 2 very different things. Of course legitimate bots exist, but I don't believe that any big exchange today (including Bitfinex) runs fraudulent bots capitalized with fake money.
It's possible that similar things could be occurring, knowing bitcoin, probably expected.
One thing to note is that the vast majority of "mainstream" interest and institutional investment came about because of the surge in pricing caused by the willy bot[0]. People saw this and interpreted it as broad-based interest and demand for btc, while the actual situation was more about a French Jewish Japanophile, deploying some shenanigans in an unregulated market trying to get the head of his embattled exchange business back above water.
So in a way the willy-bot situation has triggered all the subsequent irrational exuberance.
«Instead of the vastly changed future with digital currencies and the breakthrough of the Blockchain technology we were promised, we’ve just been stuck with a huge bubble and growing complications»
This guy simply needs more patience. The social & economic changes that cryptocurrencies sparked are barely beginning. They will take decades to fully unfold. Just because "it" hasn't happened yet doesn't necessarily mean cryptos are worthless and will all crash to zero.
It is true, however, that there is a bubble. But there are always bubbles at various points of the development of most revolutionary technologies. And Bitcoin's bubbles are becoming tamer over time.¹ In fact they are becoming tame enough that Bitcoin's returns are sometimes beaten by blue chip stocks: in 2016 AMD went up 420% but BTC only 170%.
¹ It took 1 month to go 10× from $120 to $1200 in Nov 2013, but 1 year to go 10× from $490 to $4900 in Aug 2017.
I was skeptical of Bitcoin when I first heard of it. Now I think that it's here to stay. I don't think ICOs are a bubble either (not all of them at least). I think that we need more ICOs to increase the capacity of the internet of cryptocurrencies.
Digital currencies address a real problem; government and institutional manipulation of money. Traditionally, everyone has been forced to drink from the same pond; world governments decided what the economic environment would be in any given country - Because of this, some generations or specific groups of people have been set up for failure.
If you're born in a country whose monetary policy or economic environment is working against you; cryptocurrencies provide an idealistic escape hatch; an alternative way of valuing your labour and your potential.
The traditional fiat financial system has been corrupted by an army of traders, venture capitalists, investment bankers, bureaucrats, lobbyists and corrupt politicians; their actions have damaged the public perception of fiat currencies and have been devaluing them.
Fiat currencies are no longer seen as the product of meritocracy; but as the product of luck or corruption.
Regular people are not the ones driving up the price of cryptocurrencies; they're driven up by rich people who are (perhaps inadvertently) voting against the same system which made them rich in the first place. Maybe this is what Karl Marx had in mind when he suggested that capitalism could destroy itself.
Bitcoin is not a bubble; a true bubble grows until it pops; then it stops growing. Bitcoin has popped many times in the past and has always recovered.
Scenario: The US bans all banks and credit agencies from transferring money to/from bitcoin exchanges. Most of the other powerful countries follow suit.
Tulips had no innovation. Not sure why techies don't get it. Its so simple that this is a wrong comparison but every two months someone writes an article about it. It's beyond me.
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I'm bearish on Bitcoin yet bullish on Ethereum because of other factors besides their valuation such as roadmap, potential and usability.
Usability is also the biggest complaint of the author. It's one of the biggest factors preventing mass adoption.
In many ways this is worse. There is a lack of competence in executing on the single most important feature of Etherium: it's ability to home other cryptocurrency.
And without this, what exactly is the value eth adds? To me, this is an attempt to control and force the ecosystem. It's there to facilitate overvalued and underveted ICos and sidecar it as a revenue stream.
It's not there to build something sustainable, it's there to extract value. If they cared about sustainability, the lack of rigor and correcness in eth contract building tools would be seen as a crisis and it would be much closer to resolution.
https://blog.ethcore.io/the-multi-sig-hack-a-postmortem/
[0]https://www.ethernodes.org/network/1
[1]https://www.coindesk.com/30-million-ether-reported-stolen-pa...
- DASH (Digital Cash)
- Vertcoin
- NAVcoin
Of those, DASH is probably the most likely in my opinion to eventually challenge bitcoin or ETH.
cache:devolutionreview.com/bearish-on-bitcoin/
https://en.wikipedia.org/wiki/MacGuffin
I don't know about cryptocurrencies in general, but ICOs seem to me to be mostly foam.
I've seen it likened to the Dot com bubble. Sure several groundbreaking titans of the Internet were founded during that time. They are valued as major players in the world economy. But there were many more that were inflated and the sector as a whole was inflated.
Now, if you're a savvy enough investor to be able to pick the eventual winners during a bubble, you'll come out great even after the crash. But if not, then you're just gambling. And the house will eventually win.
Fully agree - I don't agree however with how the most popular (which is the reason they're popular)a and how they are incentivized to transfer wealth unreasonably, wealth transferred weighted to the earlier you're an adopter. It's a global, decentralized Ponzi-like scheme. The banking sector are 'adopting' them as any large institution has a budget to try to understand something. All Fortune 1000 companies have money to play around and they'll need to be prepared for blockchain - however don't confuse that with a vote specifically for Bitcoin or Ethereum's Ether.
If you want a parallel to Tulip Mania, you have Beanie Babies. It was pure asset inflation for the sake of asset inflation. There was no innovation (except in markets for distribution of the asset), just wild speculation on things that were almost completely useless.
I do think cryptocurrency is in a bubble, but I see it far closer to Railway Mania or the Dot Com bubble. In both cases there is a clear cut demonstration of potential utility even pre-bubble, meaning there very likely a post-bubble future for the technology, even if the landscape changes drastically in the meantime. Railway mania in particular had plenty of failures, but it also had many companies that were viable but just overvalued, and even beyond that, there were plenty of companies that thrived post bubble.
I have my own speculations as to who will come out alive when the bubble crashes, and it certainly wont be anything tied to "smart" contracts, which has been the source of most of the ridiculous market behavior as of late (ERC20 especially). Others will survive on their merits, and I'll say this much: If it isn't low latency, low energy consumption, highly liquid, and traceable, it's as good as dead.
What are a few things that pass those criterion and hence have a chance at living in your estimation?
As with the Internet company scenario, the tulip forecast short-term is partially correct. Long-term, as with the Internet, what comes next will be far, far more valuable and globally so. Blockchain technology will touch, essentially, every person on the planet. It doesn't matter if the successful rider is Bitcoin or CoinX, just as it didn't matter if it was Sun Microsystems or Webvan or Dr Koop.com or Lycos that made the most off the potential of the Internet.
http://money.cnn.com/2000/11/09/technology/overview/
Are crypto-currencies over inflated? Yes.
We can see the path from commodity currency, to paper, to fiat was a long and messy road history makes this clear. While in all likelihood crypto may very well supplant fiat the likelihood it'll happen in 1-2 generations is slim.
Furthermore if history is a guide the replacement of Fiat by crypto will likely happen by mistake, or in such a small way few will notice.
A strong argument can be made the USD (and most the world's curreines) are backed by oil as oil may only be exchanged for USD.
Furthermore inflation tracks oil sale perfectly since the petro-dollar started.
Eg if ETH starts being used for most transactions, and BTC started crashing in value would anyone feel a need to keep it?
Edit: The above is a rhetorical question.
So, if you invest in Euros in the US, and the dollar falls relative to the Euro, you owe money to the IRS — and vice verse for the Euro in Euro-countries. It’s difficult for competing currencies to gain traction when you owe money if the legal tender drops in value (relative to the competing currency).
A. A dollar bill represents an accounting entry in a bank account. Banks are the third party that facilitate trust and the rules by which 2 actors trade. B. Dollar bills are legal tender for the payment of taxes. They are enforced by government, which is the sole legal arbiter of coercive action. Taxation requires every citizen to hold a reserve of state currency. C. Due to the specialized printing process dollar bills are, at least theoretically, hard to counterfeit. D. Ubiquity as trading mechanism, barter requires double coincidence of wants (rare) or interpersonal credit (lack of third party oversight to guarantee fair play). When holding assets, these can deprecate (or appreciate) in value, and would need to be converted in cash holdings to avoid the impracticalities of barter exchange. E. They are an convenient way of turning digital entries into tangible user objects, since they hardly take any space.
I'm sure you could keep the list going. Notice how cryptocurrencies satisfy a lot of those conditions. Also notice how bitcoin in particular fails at a number of them.
I don't understand your point. I can understand we will have multiple crypto currencies, but if there are unlimited number of currencies, why would any of them have any value?
BTC holders, at least.
That's not the whole story though, some of these other cryptos also serve as a testbed for new concepts & improvements, differ in particular ways to better suit a specific purpose, target different markets, have different core values or are alltogether alternate technical implementations.
Each one of those nuances adds some deegree of value. As with any stock or other economic asset, their price today is not necessarily reflecting the value it has for practical use today, but rather the possibility that it will become necessary or more dominant in the future.
So much so, that when trading other crypto currencies you're usually trading via BTC.
2) Economics. Bitcoin is deflationary. There will only ever be 21m Bitcoins. Ethereum does not have a hard cap on the max number of Ethers. Each coin has its own economics. Smart investors will understand the economics behind each coin they buy into. Otherwise you end up buying Ripple at 40 cents each thinking its a bargain...
https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes
Many bubbles are caused by government actions. Our own housing bubble was fomented by numerous bad policies.
Bitcoin is not a creature of government but is actively opposed by many of them.
And yet, OP just provided evidence of a case where, previously, we assumed a specific asset bubble was caused by "human nature", but in fact it looks like it was created through the government inadvertently creating risk-free speculation in options contracts for this very asset.
By the way, this is a really interesting argument. I’m surprised it hasn’t be pointed out before.
Paper link: https://link.springer.com/article/10.1007%2Fs11127-006-9074-...
> If the price rose above 100 guilders, the speculator would pocket the difference as profit. If the price remained low, the speculator could void the contract for only 3½ guilders.
The Dutch government enabled risk-free speculation in tulip options contracts (formerly futures contracts). How could the price of such a contract not rise under these circumstances?
Do we know about how much Bitcoin trading is done on leverage? I suspect it's relatively low (as securities go).
in these cases, bitcoin could be an example of that
The same thing has happened with Chinese buyers driving up the price of random short domain names.
https://qz.com/581248/chinas-latest-investment-craze-is-shor...
Tulip Mania gets referenced because it's ridiculous on its face, but what about the Dot-com Bubble or Railway Mania? [1]
Economic systems are a combination of markets and regulatory frameworks, and you can't always blame regulations when the economics say things you don't want them to. It's flatly impossible to isolate the two: the market is shaped by regulations and visa versa.
1. https://en.wikipedia.org/wiki/Railway_Mania
Nowhere does OP says that a Bitcoin bubble is impossible. He merely explains that it is interventionism in free markets that has historically been the root cause of many bubbles. Government intervention for which government intervention is required to correct the nefarious effect, in return begging for even more intervention, and so on... ad nauseam. There's a big difference between this thesis and the one you comment.
>Economic systems are a combination of markets and regulatory frameworks
That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead it you want it therefore excluding others instead of being as general as possible. A better one would be simply: "an economic system is a configuration in which the five factors of production interact".
> you can't always blame regulations when the economics say things you don't want them to.
Again, that's not what OP says. He never said that free markets are precluded from doing harm. Only that government intervention is even more inefficient and harmful but in ways which are far greater to anticipate until it goes boom. Why? Because artificially changing the parameters of a complex systems creates tons of side effects, including hidden incentive feedback loops which prompts some actors to adopt behavior that are locally optimal but takes us into directions we do not want.
__
should be:
That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead you would want it to be as general as possible so as to be the common denominator between different economic schools of thoughts, or even eras.
This is obviously wrong: even accepting the premise of Thompson's paper, the popping of the bubble is blamed on what you've referred to but the mania (the inflated asset prices) existed for a very long time prior to that. In retrospect, the method of popping the bubble is really the least interesting part of that whole phenomenon (it's a given that those prices were going to crash) although I'm sure the people who experienced it did not feel that way.
http://www.thebubblebubble.com/wp-content/uploads/2012/05/Tu...
(I agree with your more important point that tulip mania and bitcoin are quite different)
If the "government action" in question is deregulation that allows the market to blow itself up, do you want to chalk that event up to market failure or government action?
And even without such special-purpose institutions government can cause market bubbles by nothing more than its "monetary policy" and artificially induced inflation.
I don't.
Another important difference is that part of the community is self sustainable and doesn't depend on external funding.
The main problem with ICOs is that there are not many independent auditing organisations. I know only of ICOrating, but even this seems inadequate.
That is right but we are talking about a "thing" that is completely new. Future ICOs will have more due diligence, that is natural and it is unfeasible that they can continue with just a whitepaper in place. BTW, one sector in my company works specifically with ICOs and we are working with some real companies, doing and selling real products, and they plan to launch their ICOs in the next 6 months.
Yes, the hype is overwhelming but I think tulip mania is bad comparison, a better comparison would be AI winters or tech bubbles.
[0]: https://en.wikipedia.org/wiki/Bitcoin
[1]: https://en.wikipedia.org/wiki/List_of_cryptocurrencies
[2]: https://en.wikipedia.org/wiki/Tulip_mania#History
https://en.wikipedia.org/wiki/AI_winter
The last time this happened with bitcoin about 4 years ago the surge only lasted a couple of months.
It rolls off the tongue though, and praise Hollywood for spreading another misconception.
Commodities have value because they are useful. A pear is useful because I can eat it. A shirt is useful because I can wear it. Gold is useful because I can use it to conduct electricity or have my tooth filled.
Since gold is portable, uniform, divisible and durable, it makes a good currency too. Up until 1971, people carried around little pieces of paper (even more portable than gold) redeemable for gold as a kind of currency.
Cryptocoins are worthless. They have no value. The proponents of cryptocoins cast about the world looking for commodities with value to compare cryptocoins to and found none.
But then they came across the post-1971 dollar/euro. It is not immediately clear why these pieces of paper are being used post-1971. Seizing on this confusion, the cryptocoin advocates point to the one thing in the world they could find without obvious value and say "we're just like this - but better".
Another gulf of confusion they exploit - they tell us technical people that this has value for financial reasons we wouldn't understand as technical people. Then they go to the financial people and tell them this blockchain technology is too complex for them to understand, but it's valuable. As few people have a foot in both worlds, it's a gulf for this scam to walk into.
The market cap for Bitcoins, Ethereum, Ripple etc. is $137 billion which is absurd. Dogecoin is supposed to be worth $100 million despite its creator coming out and saying it was a joke and this valuation is absurd. Charlie Munger, Warren Buffett, Jamie Dimon all have noted how Bitcoin is, as Munger puts it, "rat poison".
I witnessed the subprime mortgage bubble in 2008, the dot-com bubble in 2000, and now we have another one. Whereas Pets.com or a suburban development had some value, albeit overinflated, the $130 billion crypto"currency" market cap is absurd. It is going to crash to near the $0 mark at some point. As Keynes noted though, markets can remain irrational longer than you and I can remain solvent.
See for instance Money by Eric Lonergan; Debt by David Graeber; Money, The Unauthorized Biography by Felix Martin; Theory Of The Monetary Circuit by Augusto Graziani; Soft Currency Economics by Warren Mossler; Creating Economic Order by Michael Hudson; Debt and Economic Renewal in the Ancient Near East by Michael Hudson.
These argue that accounting systems (and even writing, according to some) grew out of interpersonal debt/credit relations. Money then grew out of these accounting systems, as a token representation of the abstract accounting entries. In this view, money is fundamentally a kind of social contract, rather than a representation of some stored potential trade-good.
I did not realize Bitcoin was actually a Plant or more specifically a flowers bulb. I have been using computers my whole life, I had no clue I could run flowers on my machine, also flowers would allow me to create value using electricity, and send value over TCP/IP without a trusted third party.
Go ahead and sell your bitcoin or whatever the fuck you want to do because your clearly too dumb to understand a protocol, or the abilities a protocol can provide.
Wait a minute Bitcoin can't be a flower, I mean it doesn't die during the winter, also my cat has never tried to eat it.
Ignoring the price of BTC, I would bet against Bitcoin purely on technical grounds. If the transaction fee history is correct [1], then it would suggest that the economic feasibility of Bitcoin as a payment service diminishes as it scales, and, with a peak mean transaction fee of nearly $9 USD last month, the blockchain cannot even support its own current popularity.
[1] https://bitinfocharts.com/comparison/transactionfees-btc-eth...
David Karpeles admitted at trial to running bots on Mt. Gox, and such bots were implicated in the rise of Bitcoin's price up to $1000 in 2013. Bitcoin has experienced a similar jump in value over the past year. If Mt. Gox successfully manipulated the price of Bitcoin using bots in the past, how do we know other exchanges aren't doing the exact same thing right now?
Don't get me wrong, I think there is potential value in Bitcoin as a distributed/frictionless method of money transfer, however as an asset/investment I think it's extremely risky and I'm not necessarily sure the run up to $4000 reflects its underlying value: the ecosystem is largely unregulated and as such there is a greater risk of fraudulent activity and manipulation that would not be permitted under a regulated market. Especially if the pseudonymous nature of Bitcoin transactions makes such manipulation harder to detect.
I am curious if anyone who has recently put money into Bitcoin has thought about this, and if so, what made them to decide to invest anyway? Am I just being paranoid?
It's very simple. Before 2013 MtGox was the largest Bitcoin exchange in the world with the most volume (something like 80-90% of the market—I don't remember the exact numbers). They effectively defined the price and the bot could control it.
Nowadays there are dozens/hundreds of exchanges around the world. One bot trying to increase the price on one exchange would get severely arbitraged through other exchanges, and the cheating exchange would be quickly driven into insolvency.
Also Mark Karpeles was a sole proprietor of a private company. He had free reigns and no one to answer to. It was easy for him to decide to run this fraudulent bot. The chance of the same illegal manipulation happening at very high profiles exchanges like Coinbase/GDAX or Gemini who are VC-funded and run by respectable executives is very low.
> The chance of the same illegal manipulation happening at very high profiles exchanges like Coinbase/GDAX or Gemini who are VC-funded and run by respectable executives is very low.
Yeah, I don't expect this to be occurring at US companies who presumably could be prosecuted for fraud. But what about other companies that are based in countries with less regulation (or with regulators that could be paid to look the other way)?
You seem to be confusing legitimate bots (written by traders to use an exchange's API) with the MtGox fraudulent bot (which was using fake dollars injected in the trading engine by Karpeles). These are 2 very different things. Of course legitimate bots exist, but I don't believe that any big exchange today (including Bitfinex) runs fraudulent bots capitalized with fake money.
One thing to note is that the vast majority of "mainstream" interest and institutional investment came about because of the surge in pricing caused by the willy bot[0]. People saw this and interpreted it as broad-based interest and demand for btc, while the actual situation was more about a French Jewish Japanophile, deploying some shenanigans in an unregulated market trying to get the head of his embattled exchange business back above water.
So in a way the willy-bot situation has triggered all the subsequent irrational exuberance.
[0]https://willyreport.wordpress.com/2014/05/25/the-willy-repor...
This guy simply needs more patience. The social & economic changes that cryptocurrencies sparked are barely beginning. They will take decades to fully unfold. Just because "it" hasn't happened yet doesn't necessarily mean cryptos are worthless and will all crash to zero.
It is true, however, that there is a bubble. But there are always bubbles at various points of the development of most revolutionary technologies. And Bitcoin's bubbles are becoming tamer over time.¹ In fact they are becoming tame enough that Bitcoin's returns are sometimes beaten by blue chip stocks: in 2016 AMD went up 420% but BTC only 170%.
¹ It took 1 month to go 10× from $120 to $1200 in Nov 2013, but 1 year to go 10× from $490 to $4900 in Aug 2017.
Digital currencies address a real problem; government and institutional manipulation of money. Traditionally, everyone has been forced to drink from the same pond; world governments decided what the economic environment would be in any given country - Because of this, some generations or specific groups of people have been set up for failure.
If you're born in a country whose monetary policy or economic environment is working against you; cryptocurrencies provide an idealistic escape hatch; an alternative way of valuing your labour and your potential.
The traditional fiat financial system has been corrupted by an army of traders, venture capitalists, investment bankers, bureaucrats, lobbyists and corrupt politicians; their actions have damaged the public perception of fiat currencies and have been devaluing them.
Fiat currencies are no longer seen as the product of meritocracy; but as the product of luck or corruption.
Regular people are not the ones driving up the price of cryptocurrencies; they're driven up by rich people who are (perhaps inadvertently) voting against the same system which made them rich in the first place. Maybe this is what Karl Marx had in mind when he suggested that capitalism could destroy itself.
Bitcoin is not a bubble; a true bubble grows until it pops; then it stops growing. Bitcoin has popped many times in the past and has always recovered.
There is no ICO that has not raised way more money than necessary.
Then you add that most ICOs are little more than a white papers with some pedigree and you have the makings of a bubble.
Now what?