Why and how the Cryptobubble will burst(medium.com)
medium.com
Why and how the Cryptobubble will burst
https://medium.com/@dennyk/why-and-how-the-cryptobubble-will-burst-de9bc7fc5332
61 comments
I don't see how Crypto 'Market Cap' is in any way related to the term 'Market Cap' as related to traditional stock.
Happy that there isn't much disagreement here. A rational consensus is uncommon on Hn.
Just yesterday I saw an ad on the Tube[1] - "Buy & short cryptos" / "Copy expert crypto traders" / "Invest in a crypto portfolio", and made me think of cabbies giving stock tips previous to the 1987 crash.
[1] Pic here: https://twitter.com/gabrielgambetta/status/92678756736590233...
[2] Turns out it was shoeshine boys and 1929 (http://archive.fortune.com/magazines/fortune/fortune_archive...), but my point stands :)
[1] Pic here: https://twitter.com/gabrielgambetta/status/92678756736590233...
[2] Turns out it was shoeshine boys and 1929 (http://archive.fortune.com/magazines/fortune/fortune_archive...), but my point stands :)
At a market cap of $200bn, it's hardly comparable. In fact, it's not even a blip in the grand scheme of things.
If this really is a bubble, current prices are cheap (imo) and it will head into the many trillions of dollars. But that's me putting on my speculator hat.
If this really is a bubble, current prices are cheap (imo) and it will head into the many trillions of dollars. But that's me putting on my speculator hat.
There will be a shake out, no doubt. The more valuable question to ask and answer is "which" cryptos will survive and thrive and "when" will this bubble burst?
Interestingly, the deflation that happened recently in ICOs and Alt currencies seems to have boosted Bitcoin price (as the % share of bitcoin jumped)
While a bubble burst will affect most of the crypto, I wonder if crypto-currencies will survive the effects differently.
While a bubble burst will affect most of the crypto, I wonder if crypto-currencies will survive the effects differently.
Bubbles are everywhere, one you probably never heard of is called humanity, yes our species.
One significant fuel of blockchain tech is the distrust in the current financial systems. If central bankers and governments could regain trust there is a probable chance of a bust.
One significant fuel of blockchain tech is the distrust in the current financial systems. If central bankers and governments could regain trust there is a probable chance of a bust.
This article fails to address the major question. Why and how are not important. The only thing that matters is WHEN the bubble will burst. Nobody can answer that question. My best estimate is around the 2020 election cycle when regulation of cryptocurrency becomes a major issue
Seems to me mostly a (valid) criticism of ICOs, which are kind of like penny-stock. No one would put all their money in a single penny stock, right?
It doesn't say much about buying stock in companies who have 'blockchain' in their name. Many of these seem like traditional startups (and many will fail), but can any of them provide fast growth? if not, any long term value?
Disclaimer: outsider point of view, I know nothing about this. I stopped using Bitcoin when renewing a domain name would cost me $5 in fees for a $15 transaction.
It doesn't say much about buying stock in companies who have 'blockchain' in their name. Many of these seem like traditional startups (and many will fail), but can any of them provide fast growth? if not, any long term value?
Disclaimer: outsider point of view, I know nothing about this. I stopped using Bitcoin when renewing a domain name would cost me $5 in fees for a $15 transaction.
It already burst a couple of times actually. Back with MtGox we had quite the burst and a long period of decline. Or how about the 5 times China forbid Bitcon? Burst after burst.
As with the internet: we continued to built it anyway. Adding value to the network in our own way.
I have not stopped working with Blockchain technology no matter the price. I went from millionaire to nothing back to multi-millionaire and I have just kept on working. And I will keep on working, bubble or no bubble, there's always going to be cryptocurrencies and cryptocurrencies-innovation and work for developers and a nice people and fun projects.
As with the internet: we continued to built it anyway. Adding value to the network in our own way.
I have not stopped working with Blockchain technology no matter the price. I went from millionaire to nothing back to multi-millionaire and I have just kept on working. And I will keep on working, bubble or no bubble, there's always going to be cryptocurrencies and cryptocurrencies-innovation and work for developers and a nice people and fun projects.
The number of bursts can also be summarized from history of heists https://imgur.com/0WDy5Wo
The MtGox magnitude was way way larger than what we have seen so far.
The MtGox magnitude was way way larger than what we have seen so far.
While I suspected the same, after reading the article, the author does not conflate the bursting of the crypto bubble with the price of BTC.
After this realization I was able to set aside my indignation and observe that the author makes a good point in that most other Cryptos and "blockchainy" startups are doomed to fail, while BTC as he claims will likely recover (he makes some mention of a v-shaped price trend in BTC when the bubble bursts.
After this realization I was able to set aside my indignation and observe that the author makes a good point in that most other Cryptos and "blockchainy" startups are doomed to fail, while BTC as he claims will likely recover (he makes some mention of a v-shaped price trend in BTC when the bubble bursts.
As a developer of these technologies, you're in a completely different situation than the investors. Crypto-technologies have obvious value anywhere privacy is desired, but once productized as a virtual floating asset, the value becomes much harder to quantify, and then the grifters appear. Seems to me incorporating less privacy, a private side-channel for checks and balances of sorts, is something necessary. But I'm not a crypto-technologist, just someone with a graduate economics education, so my impressions may be irrelevant.
Privacy is actually a common misconception when it comes to cryptocurrency. More currencies, bitcoin included, are actually the opposite of private – every transaction is completely public for everyone to see. There are currencies (i.e. Monero) that aim to add privacy, but by and large it doesn’t exist.
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This one is one hell of laborious read. Though on the top highlight:
> This is the reason why things like technical analysis work much better in crypto than in equities, because these markets are quite obviously more likely to be driven by fear and greed than established markets.
It works because as the author puts it " the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life."
In which case, trading is mostly done by reading some trading books. Fundamental analysis tools like valuation etc. are quite vague and don't really provide a simplistic "if a, then do b" answers. So, people turn to TA which is much easier. If a significant amount of people follow it, then it becomes a self fulfilling prophecy.
That said, author also seems to use TA as well:
https://medium.com/@dennyk/trying-to-make-sense-of-the-ellio...
> This is the reason why things like technical analysis work much better in crypto than in equities, because these markets are quite obviously more likely to be driven by fear and greed than established markets.
It works because as the author puts it " the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life."
In which case, trading is mostly done by reading some trading books. Fundamental analysis tools like valuation etc. are quite vague and don't really provide a simplistic "if a, then do b" answers. So, people turn to TA which is much easier. If a significant amount of people follow it, then it becomes a self fulfilling prophecy.
That said, author also seems to use TA as well:
https://medium.com/@dennyk/trying-to-make-sense-of-the-ellio...
I think many crypto-currencies (with and without ICOs) are rather obvious cash grabs that provide no actual value beyond speculation (e.g. dogecoin); was something comparable going on during the .com bubble? Were there many companies offering no actual value and taking in cash?
Edit: I originally conflated cryptos with ICOs, and have since corrected the mistake.
Edit: I originally conflated cryptos with ICOs, and have since corrected the mistake.
Dogecoin was made to take the piss on Bitcoin, not as an ICO. The fact that Dogecoin isn't currently worthless is a testament to how hilariously blind people are to the bubble.
I made money buying and selling UET (Useless Ethereum Token) [0]. There were open buy orders on an exchange for more than it was actively available for via ICO for a period of about a week. So naturally I made a bundle buying and selling it. In this case it was the confusing ICO terms that made it profitable.
[0] https://uetoken.com/
[0] https://uetoken.com/
Impressive. I unironically applaud your success on making money off complete idiots.
Dogecoin is a cryptocurrency in its own right, rather than an ICO.
You're right, I misspoke. My point I think still stands - there are something like 1-2 thousand different Cryptos, many without ICOs, but there is little value in purchasing them, be it via ICO or an ordinary exchange.
Disclosure: I sold most of my Bitcoin, and I own some Dash and Sia.
> cheaper at some point over the next 12 months is extremely high.
I agree with 85% of this post. Except two things:
1. I think people dramatically underestimate the likelihood that Bitcoin and all cryptocurrencies get completely banned. ISIL isn't ransoming civilians for Bitcoin yet. They, or someone else will. Politicians and judges aren't getting contract killed via cryptocurrencies yet. They probably will. Governments are going to give people a choice: we're regulating you (signing transaction reversal with a special US TREASURY key, say, or requiring real identities behind addresses) or we're shutting you down. This even has precedent (eGold in the 90s). I think Bitcoin has a higher chance of surviving this than Etherium because it's less complex of a change.
2. Just because you can call that there will be a Bitcoin pull back in the next twelve months, doesn't mean that it will be less than the price right now. Bitcoin has gone up a lot in the past 12 months and it can go up a lot more in the next 6. If it crashes from $25k a coin to $5k a coin you aren't really giving good advice for what to do today. Personally I hope it crashes to $1k soon so I can buy back in. Feeling kinda dumb for selling at $6k CAD, but it really could hit $50k before the pullback.
> cheaper at some point over the next 12 months is extremely high.
I agree with 85% of this post. Except two things:
1. I think people dramatically underestimate the likelihood that Bitcoin and all cryptocurrencies get completely banned. ISIL isn't ransoming civilians for Bitcoin yet. They, or someone else will. Politicians and judges aren't getting contract killed via cryptocurrencies yet. They probably will. Governments are going to give people a choice: we're regulating you (signing transaction reversal with a special US TREASURY key, say, or requiring real identities behind addresses) or we're shutting you down. This even has precedent (eGold in the 90s). I think Bitcoin has a higher chance of surviving this than Etherium because it's less complex of a change.
2. Just because you can call that there will be a Bitcoin pull back in the next twelve months, doesn't mean that it will be less than the price right now. Bitcoin has gone up a lot in the past 12 months and it can go up a lot more in the next 6. If it crashes from $25k a coin to $5k a coin you aren't really giving good advice for what to do today. Personally I hope it crashes to $1k soon so I can buy back in. Feeling kinda dumb for selling at $6k CAD, but it really could hit $50k before the pullback.
With respect to point 1. I don't see why terrorist activity would lead to a ban. Bitcoin will always be an extremely small part of terrorist revenue generation and tracking transactions can give intelligence agencies a window into their finances as a result. Seems like an entirely reasonable tradeoff.
Why would terrorists want bitcoins, or any currency that has a blockchain tracing the movements of the digital coins? USD are valuable in most places around the world, and are practically untraceable, plus you can actually buy stuff with them.
That dystopian/authoritarian view is fully valid if you assume globally coherent policing. It is completely in the interest of any fiat-based sovereign to regulate/criminalize crypto into the ground even before adding the terrorism flavor-text.
Fortunately, we are in a position now where the first countries to outlaw crypto will simply miss out on the explosive growth, pushing it into other countries.
If it is extremely difficult to, for instance convert USD into BTC, the USD price of bitcoin will shoot up (as we've seen in Asian markets where banks have imposed defacto currency controls). The arbitrage would then devalue USD on the world market.
Fortunately, we are in a position now where the first countries to outlaw crypto will simply miss out on the explosive growth, pushing it into other countries.
If it is extremely difficult to, for instance convert USD into BTC, the USD price of bitcoin will shoot up (as we've seen in Asian markets where banks have imposed defacto currency controls). The arbitrage would then devalue USD on the world market.
Fortunately, we are in a position now where the first
countries to outlaw crypto will simply miss out on the
explosive growth, pushing it into other countries.
I.E. if the majority of Bitcoins were produced for low cost in China from 2009-2014, than American citizens would be at great disadvantage by trading their fiat for Bitcoins produced at low value input.
> . I think people dramatically underestimate the likelihood that Bitcoin and all cryptocurrencies get completely banned.
I expect this will be almost as effective as the banning of narcotics, pirated media, alcohol during prohibition, etc. It's far, far too late for this to have a lasting effect (though certainly a short term reduction is price is likely)
I expect this will be almost as effective as the banning of narcotics, pirated media, alcohol during prohibition, etc. It's far, far too late for this to have a lasting effect (though certainly a short term reduction is price is likely)
Have you tried to move $100k in narcotics around recently? That's right. For an average person it is not worth the risk.
The average person doesn't have $100k in narcotics.
The government has more than enough power to prevent banks and investment firms from getting involved, which could significantly limit the pace of future growth in cryptoasset prices.
In the big picture, a tension between mathematics and the law has always been near the heart of the history of cryptanarchy and cryptocurrencies. Sometimes-Satoshi-candidate Nick Szabo has written extensively on this for ages [0]. I'd summarize it like this: 1) The Constitution cannot ultimately protect the legality of any crypto-related activity against a motivated governement. 2) The government cannot ultimately stop P2P crypto-architectures from functioning, although illegally, short of shutting down the Internet.
[0] http://unenumerated.blogspot.com
In the big picture, a tension between mathematics and the law has always been near the heart of the history of cryptanarchy and cryptocurrencies. Sometimes-Satoshi-candidate Nick Szabo has written extensively on this for ages [0]. I'd summarize it like this: 1) The Constitution cannot ultimately protect the legality of any crypto-related activity against a motivated governement. 2) The government cannot ultimately stop P2P crypto-architectures from functioning, although illegally, short of shutting down the Internet.
[0] http://unenumerated.blogspot.com
It won't be effective at destroying bitcoin as an effective currency for illicit activity, but it absolutely would destroy the price, because you'd only be able to trade it outside of major exchanges, and without interacting with the american banking system, which would be hard.
The utility of Bitcoin for illicit activity is very much related to the fact that it can be then used in the legal economy. So, yes, an outright ban on its use and exchange would impact already-unnecessary uses.
> Just because you can call that there will be a Bitcoin pull back in the next twelve months, doesn't mean that it will be less than the price right now
> you aren't really giving good advice for what to do today
This. At this point anyone with half a brain knows that there is heavy speculation going on and there is a bubble happening. That doesn't automatically mean you're dumb to be investing, or that those who are still investing surely haven't lived through a speculative market bubble before, as the author suggests.
The only real problem is that many people do not understand the risks inherent to speculation and overexpose themselves to losing money they can't afford to lose. Once you buy into the lie that "the price can only ever keep going up", you're setting yourself up for a rude awakening. But if you properly understand the risks and don't overexpose yourself, you can still invest intelligently.
This. At this point anyone with half a brain knows that there is heavy speculation going on and there is a bubble happening. That doesn't automatically mean you're dumb to be investing, or that those who are still investing surely haven't lived through a speculative market bubble before, as the author suggests.
The only real problem is that many people do not understand the risks inherent to speculation and overexpose themselves to losing money they can't afford to lose. Once you buy into the lie that "the price can only ever keep going up", you're setting yourself up for a rude awakening. But if you properly understand the risks and don't overexpose yourself, you can still invest intelligently.
From what I have seen, Bitcoin is not a single bubble.
It is a endless stream of bubbles, and I see no end in sight.
Each bubble bursts and after a while it starts bubbling up again.
So, yes, it will burst. Many times. But that doesn't mean it will be the end of it.
It is a endless stream of bubbles, and I see no end in sight.
Each bubble bursts and after a while it starts bubbling up again.
So, yes, it will burst. Many times. But that doesn't mean it will be the end of it.
It's carbonated from all the CO2 it's pumping into the environment.
It also goes along with the stock bubble which is absolutely fueling it.
You have a bunch of people with inflated net worths from their stock holdings who are being sold on Bitcoin as the "new gold" and a way to diversify their portfolios.
You have a bunch of people with inflated net worths from their stock holdings who are being sold on Bitcoin as the "new gold" and a way to diversify their portfolios.
Just wait until the stock market crashes again and investors need to exit and park their wealth somewhere for awhile. I bet Bitcoin will be one of those places that wealth will go.
that is one way things could go.
the other is that when over-leveraged people who are living way beyond their means see their stock portfolios collapse they are all going to try to liquidate their crypto at the same time and so crypto will collapse the same as stocks.
the other is that when over-leveraged people who are living way beyond their means see their stock portfolios collapse they are all going to try to liquidate their crypto at the same time and so crypto will collapse the same as stocks.
That is certainly possible. I've liquidated some assets before when I really didn't want to just because I was going through some tough times financially.
Amazon survived (thrived) the dot-com burst. I see no reason to believe the same won’t be said of at least one coin. My money is on bitcoin and etherium.
can someone please tell medium.com to fix their certificates! Error code: SEC_ERROR_UNKNOWN_ISSUER
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--chrome-- Your connection is not private
Attackers might be trying to steal your information from medium.com (for example, passwords, messages, or credit cards). Learn more NET::ERR_CERT_AUTHORITY_INVALID
--firefox-- The owner of medium.com has configured their website improperly. To protect your information from being stolen, Firefox has not connected to this website.
--chrome-- Your connection is not private
Attackers might be trying to steal your information from medium.com (for example, passwords, messages, or credit cards). Learn more NET::ERR_CERT_AUTHORITY_INVALID
Their config seems top-notch, they send all intermediary certs:
https://www.ssllabs.com/ssltest/analyze.html?d=medium.com
What is your browser/OS?
https://www.ssllabs.com/ssltest/analyze.html?d=medium.com
What is your browser/OS?
My Chrome on OSX seems happy with their cert. As does Safari. maybe OSX includes the DigiCert intermediate cert that your browser/OS does not have.
On the flip side gold has been in a 3000 year bubble without signs of bursting. The value of gold is far higher than it's industrial/luxury demand.
"In the crypto bubble, the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life." Any credible data source to back this up. Doesn't sound realistic at all.
It's not. Hedge funds have been moving in for a while, some institutional money is getting ready to move in in the next 6 to 12 months.
Precisely my thoughts....plus HNWIs. BIG difference to dot.com bubble when stocks were peddled by major brokers.
Honestly, I think it'll come. We're just not there yet (few years off)
Blogger predicts bitcoin is a bubble. HN violently agrees. News at 11.
Everyone knows that speculation is outpacing the current value of crypto, but unlike the .coms of the 2000s, there is inherent long term utility in the biggest cryptocurrencies. I can't tell what the true value will be, but there is value in these currencies independent of the fact they are trendy investments.
The startup bubble separated the companies with some value (Amazon) from companies with no real value, or not enough to justify their existence.
It is challenging for me to separate rampant FOMO speculation from the use of cryptocurrency as a currency (Zimbabwe), but I suspect something similar will happen. The technologies and platforms that enable true digital currency use will end up flourishing for the long term.
It is challenging for me to separate rampant FOMO speculation from the use of cryptocurrency as a currency (Zimbabwe), but I suspect something similar will happen. The technologies and platforms that enable true digital currency use will end up flourishing for the long term.
As an aside, it's interesting that Bitcoin can lose 10% of its value in a single day, and the media/bloggers will use language like "slight decrease" or "faded value" to downplay how serious that amount really is. (Bonus points for "The price is stabilizing" when it dips)
If it were possible to short bitcoin, we'd be hearing a very different choir (Edit: I was mistaken, it is possible)
If it were possible to short bitcoin, we'd be hearing a very different choir (Edit: I was mistaken, it is possible)
You need to see it in the context. All cryptocurrencies are extremely volatile and they routinely go up and down 10%. You simply can't compare the volatility to the stock market where similar numbers would make blood flow on the streets. Here it's almost business as usual.
It is possible to short Bitcoin on many exchanges.
I wonder, isn't bitcoin much more power-hungry than other forms of currency?
Bitcoin's bubble will pop and reform, but it's unlikely to completely burst into oblivion.