Is bitcoin in a bubble? (2018)


#1

The value of bitcoin has surged in the past few days…

The price jumped by 40% and then fell 20% in a matter of hours…

With values approaching $305 bn. its time to ask…

Are we living in a bitcoin bubble?


#2

Systemic Threat
There are is no question that bitcoin’s value is rising, but has it created a systematic threat?

Probably not. The total value of global real estate during the peak of the property boom in 2007 was roughly $217 trillion (give or take a couple of trillion - its only trillions)
The market cap of bitcoin today is $330 bn.

657 times less.

I do not know how big bitcoin needs to get to morph into a threat for the global economy, but it’s a long way of the size of the global real estate market, whose collapse brought everything down with it in 2008.

You see a lot of institutions such as Goldman, or JP Morgan saying Bitcoin follows a classic pattern of speculative mania. And this may be true.

But its not written in stone. It strikes me as a little funny that these companies could not detect the speculative mania occurring in their own banks during the 2000s property bubble?

Financial institutions have a very poor record of forecasting the future. The IMF, Goldman, Morgan Stanley, ERSI - they all have very poor records of forecasting future economic crashes. It is for this reason that John Maynard Keynes said:

"If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid."

Bitcoin’s Potential - Store Of Value
Bitcoin could have an edge as a global store of value on par with gold. The volumes of bitcoin used in e-commerce say that bitcoin is not being used as a currency. But it could easily be used as a form of digital gold if the next financial crash de-value the Chinese yuan, or the American dollar significantly.

There are many reasons why bitcoin would work as a digital form of gold. It’s:

• Liquid

• Widely-traded

• Global

• Doesn’t need require help from third parties (Banks)

I believe I am not the only person who is saying this:

The truth is…

I do not know whether its a bubble. No one else does either. I have never seen people lose out significantly by avoiding the latest hot trends (flipping houses, buying internet stocks). But I have seen people lose a lot chasing them (see 2008 great recession for more)

Is it worth it?


#3

But it might also be worth it :slight_smile: