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?

Comments (23)

Sep 14, 2017

China shut down their exchanges today (last night) due to pretty big capital flight out through bitcoin.

Sep 14, 2017

Hmm.. how to start.. I'll just conclude by saying buy now at a discount when people are panic selling. It's the future of transactions... If it's a scam scheme, all scammers will greedily take a few billion when the market cap is around 10-20 billion... Or when Bitcoin was priced at $100 going from a few cents years ago. If you say there "is" a scam scheme, of course, there is in this world, many low cap coins are just a multi-level marketing/pyramid scheme/pump and dump scheme. I think the innovation of blockchain technology will change this world and ultimately, cause creative destruction in the world's economy. The government can regulate but not ban this whole thing down unless it's an autocratic way of running the country. Arguments such as it's used for buying/selling illicit products is another story; you can't ban the whole car industry if the cars they sell crash daily and kill people right? The same argument goes with cryptocurrencies, yes they are some drawbacks but the potential benefits cryptocurrencies provide are limitless.

Sep 14, 2017

I totally agree. The government cannot ban Bitcoin when it gets too popular, but the government can certainly regulate it.

I'll just conclude by saying buy now at a discount when people are panic selling.

The Warren Buffet way, ehh?

"Be fearful and other people are greedy." -- Warren Buffet

Sep 15, 2017

"Be fearful when others are greedy and be greedy when others are fearful" - Warren Buffett

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Sep 15, 2017

I dont know too much about bitcoing, but I would make the following observations:

  1. 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)
  2. 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).
  3. 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
  4. 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
  5. 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
  6. 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
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Sep 15, 2017

This is gold.

Correct, in H Marks' most recent memo, he admits there are arguments to be made for buying cryptocurrencies, if you view them as a currency, rather than a security.

Also a great point, the first rule about financial news media is that everyone talks their own book. Dimon invested heavily in JPM's own blockchain technology at a substantial cost. So if alternatives become widespread and he has to eventually switch over, for better alignment with JPM's external stakeholders, his decision will have been a bad one for his shareholders. Naturally he doesn't want to see Bitcoin or any other crypto become widely prevalent.

And for the record, there are already over 100 cryptocurrency hedge funds in the US. I agree the majority of people clamoring to get in on the action are certified insane, but anyone who's secured the confidence and funding of enough well capitalized ppl/institutions to start a fund, is going to get extremely rich off the 2/20 fee structure - and that I respect.

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Sep 15, 2017

"And for the record, there are already over 100 cryptocurrency hedge funds in the US." Can you list some notable crypto hedge funds?

Sep 15, 2017
  1. 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

So you need to be a computer scientist to invest in crypto? You discourage any investment, at any stage, where you don't understand the technicals behind that business model/tech? I think relying on the views and research of experts are appropriate for investments like crypto/any tech.

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Sep 15, 2017

This is a good point, but because cryptos are so incredibly early stage, I feel like reading a few books & informing yourself on blockchain technology doesn't give you enough of a perspective to gauge whether or not the nuances of each specific one are unique and valuable enough to gain widespread prevalence over time.

And I think we're comparing apples to oranges by looking at crypto and publicly traded tech. I see crypto more along the lines of early stage VC.

While I don't work in VC, I do believe the big VC funds hire mostly ex-entrepreneurs or those who have extremely deep understanding of the technology in question, because only they can reliably evaluate if an early-stage product could translate to massive adoption, since they understand all of the stakeholders that will make it a success or failure.

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Sep 15, 2017

You bring up really good points here @derivstrading

But I think Jamie Dimon is being nice, warning people to get out of cryptocurrencies before they take a huge financial loss. A lot of smart-minded investors are thinking cryptocurrencies are going to trash right now. They could be wrong. I am tempted to invest a small amount of money into Ethereum if it drops further.

Best Response
Sep 15, 2017

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.

"Successful investing is anticipating the anticipation of others". - John Maynard Keynes

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Sep 15, 2017

I'm still on the fence about what crypto's actually are or will be. Are they a commodity, are they a currency, etc.? At this point I cant see how, or why, anyone would be interested in a medium of value exchange that fluctuates by 25% in a day or 1000% in a year.

"Not me. Im in my prime"

Sep 15, 2017

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.

Sep 15, 2017

pokemon cards and beanie babies

Sep 16, 2017

I vision that one day all the currencies will be in the form of electronic, where the monetary economics collapses. Fiat currency will be worth its intrinsic value and where the potential of A.I will make our life's easier and cheaper. A debt based system will fail dramatically and everyone will move to cryptocurrencies. Just my speculation; please take no offense.

Anyways, I have an interesting question and would love to hear your view. Do you believe in free will or determinism or a combination of both?

Sep 16, 2017

I just don't see BTC or any other current cryptos scaling up properly. Why would banks, other fin. institutions and large corporations give up one stream of collecting customer data? Also why would the government allow for a currency they can't control to become so widespread. I still believe that monetary policy needs to be regulated by a central body and I can't see BTC helping the cause. That being said, the technology is interesting and has a ton of practical applications. So maybe some new tech will come out that will give the best of both worlds.

Sep 16, 2017

Bitcoin ("BTC") is fundamentally flawed. A key characteristic that defines a currency is its backing by a centralized institution. A great example is the U.S. dollar. Yes, the U.S. dollar is fiat currency, but it retains its value and its use as a generally accepted medium of exchange because it's backed by the U.S. government. Bitcoin is not. As I stated in my second sentence, Bitcoin has no central backing. I see this currency ultimately failing. It is much like the Dutch Tulip bubble in the 17th century. Just like Bitcoin, when Tulip was introduced to Europe, people saw it as the next best thing. The tulip was like no other flower seen before and Bitcoin is like no other currency. Soon enough a market was created for tulips and given the surge in profits, people wanted a share of the profits. Suddenly growers began to grow their own tulips, gave these tulips different names and sold them as fast as they could. Sounds familiar. The surge in profits of Bitcoin has given rise to new crytpocurrecneis with almost arbitrary names (LBRY, litecoin, Namecoin, Vericoin, Bitcrystals, Dash..). There is no value or trusted institution behind these currencies. Its similar to a pyramid scheme. Those who bought in 2009-2011 hold large amounts of Bitcoin becasue they cashed out at these exorbitant prices. Buy BTC now and you're paying $4000+ for something invisible with no acceptance, no value, no backing, no stability, and laden with other fundamental issues. Just like the Dutch Tulips, there will be a point reached where BTC reaches a price at which people are not going to be willing to pay. Once that point is reached, the cryptocurrecny markets will be ugly.

What do you call an economist who forecasts? Wrong!

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Sep 17, 2017

More skeptical because of the ability to manipulate the currency.. great article on the medium about the big price jump in July and how the price movement was because of wash trading

Sep 18, 2017
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