Is $$$Bitcoin$$$ The Next Tulip Bulb Or The Next Dell?
Bitcoin was only 0.0001 USD on June 2009; after that, the price of Bitcoin rose to 0.07 USD a year later. During that time I heard the name "Bitcoin," but lazily disregarded it as a derivative of PayPal. Earlier this year, probably late to the party, I heard about Bitcoin again at a local poker game; then, the price of one Bitcoin was ~3,000 USD. I immediately headed home to do my research.
Now the price of Bitcoin is 3,283.79 USD, slumping down from a high of almost 5,000 USD. This downward may be partially due to business heavyweights like Jamie Dimon calling Bitcoin a fraud. In the article, "Jamie Dimon Slams Bitcoin as a 'Fraud,'" Jamie Dimon said that he would fire any employee trading Bitcoin for being 'stupid.'
The cryptocurrency "won’t end well," he told an investor conference in New York on Tuesday, predicting it will eventually blow up. “It’s a fraud” and “worse than tulip bulbs."
In bitcoin’s case, Dimon said he’s skeptical authorities will allow a currency to exist without state oversight, especially if something goes wrong. “Someone’s going to get killed and then the government’s going to come down,” he said. “You just saw in China, governments like to control their money supply."
Moreover, the co-founder of Oaktree Capital Management Howard Marks, another business heavyweight, questioned Bitcoin's intrinsic value,
In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.
I, too, was mainly skeptical of Bitcoin at first, because I couldn't find the intrinsic value of Bitcoin; but I was further encouraged by Bill Gates, a nongambler, who had encouraging words towards Bitcoin.
The YouTube video can be found here:
In my opinion Bitcoin is not a medium of value exchange yet; however, I believe Bitcoin has a bright future because of network effects. When more and more people have it and use it, Bitcoin will become a common medium of value exchange therefore making it very hard if not impossible for governments to crack down on Bitcoin in a major way. That is if they implement a rule too late in the game.
Still, Bitcoin is prone to risks. The major risk is still government and the fact that Bitcoin is making financing illegal activities easier.
Another risk is that another cryptocurrency will overtake Bitcoin, and thus, will render Bitcoin worthless. I would not advocate in investing outside of Bitcoin and Ethereum because other lesser known cryptocurrencies like penny stocks will likely see their value go down to zero.
What are your thoughts? Do you think Bitcoin as it goes further down in price, will be a good investment for the future? Will Ethereum overtake Bitcoin in market capitalization? Are you a current investor in cryptocurrencies?
I dont know too much about bitcoing, but I would make the following observations:
Im fairly sure that wasnt Howard Marks' most recent letter, in the most recent one he admits he did some more research and slightly changes his tune (doesn't flip but a lot less negative)
I am dubious on the effect of Dimon's words on the size of the move, I think much bigger effect was the China news and then it was just exposed how much of bitcoin is in unstable hands (i.e. people who just saw its gone up X% and dont want to miss out, i.e. classic bubble correction).
People need to remember there are a lot of individuals/companies that profit from just saying stuff, always keep in mind what someones economic interest is
anyone buying bitcoin without properly understanding the details (and by details i dont just mean you can explain what a blockchain is, but I mean close to being able to start a crypto currency yourself) is insane in my opinion
It might be the future of payment, it might not, the future isn't written and anyone that acts like it is delusional and anyone investing as if it is should not be managing money
All assets go up and down, but usually there are people who make money irregardless of the moves, always strive to be one of these people if you want to be rich
I don't fully understand bitcoin or blockchain and am still learning about it myself. I think it's a fascinating topic, regardless of whether your thinking is more in line with Jamie Dimon's or more in line with Marc Andreeseen's. I think there are valid points on both sides. I'm somewhere in between because I haven't learned enough about it yet but I lean more in Andreeseen's direction. My thought process goes something like this. It's easy to say that this currency isn't built on trust and that the advantages of true peer to peer payment will be enough to carry Bitcoin to success, but it's not that simple. Trust is highly important. Also, while the USD is a fiat currency, it is backed by the full faith of the US government, which, for now, still has some value. Bitcoin is only worth what other people are willing to pay for it, as Howard Marks mentions with the gold analogy. That being said, the "implied value" of gold to human civilization has outlasted any governments' currency. Many governments and societies have had currencies and those currencies have come and gone. So there is something to be said for currencies or currency-like assets that society values. Maybe Bitcoin is getting to the point of critical mass where it can achieve that sort of value. Today though I agree with Howard Marks in that it is a trading sardine. No viable currency can regularly fluctuate in value by 20% a week, or whatever the move has been for bitcoin over the past few days. In the long-term though I think this could be quite interesting. I think the fact that there is a fixed amount of bitcoin also has significant value. Think about how much value the USD has lost over the years in real terms due to the effects of inflation and continued government issuance of new currency. No more bitcoin can be created other than the predetermined amount remaining to be mined. If it is a viable currency in the long-run, then in my mind that fact has significant value and protection against dilution that traditional currencies can't answer. In the end, I wonder if Bitcoin is only the initial vehicle in this space. Maybe it's the vehicle/currency using this technology that has the first-mover advantage but is eventually replaced by another one or something similar. I refer to Peter Thiel's concept of last mover advantage here where the last institution or company to create orders of magnitude innovation in a particular area ends up dominating.
One of the issues with bitcoin is that it is both a store of value and a currency. Currently, it is too slow to be used as a proper currency, but the implementation of SegWit will lay the foundation for the Lightning Network, which could alleviate that issue.
I agree with a recent anology I heard comparing current blockchain tech to the maturity of what the internet was at in the early 90's. Very few people knew what email was, and even fewer used it but we knew it ran on the internet. I think, if it ever gets there, the fluctuation in value will stabilize when we see bitcoin's value run somewhere into the $100,000's. The dotcom bubble was in the trillions, and we're just breaking past the 100 billion mark in total crypto market capitalization this year, so I don't think that's a total stretch to say when you start to explore the possibilities for the uses of the tech.
Are we in a blockchain bubble now? No. No one knows what the fuck it is, and its use still has few examples of actual implementation other than digital currency which is just the tip of the iceberg. Is bitcoin overbought right now? Probably. The recent drop from $5k would tell you that, and we will continue to see similar rise and falls in its future.