Bitcoin Debate: It's A Bubble! No, It's Not, It Cannot Be A Bubble!

The bitcoin debate goes on and on. Some claim it’s a bubble. Others say it isn’t. Still others say it can never be a bubble.

Very Definition of a Bubble

On November 2, Credit Suisse CEO, Tidjane Thiam jumped on the bubble bandwagon with this statement: Bitcoin Is the ‘Very Definition’ of a Bubble.

“From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,” he said at a news conference in Zurich Thursday. He added that in the history of finance, such speculation has “rarely led to a happy end.”

That’s a rather curious definition of bubble. Using the same rationale, every financial instrument meets the requirement. The only reason to buy any stock or bond is to make money.

Realistic Bubble Definition

Wikipedia Definition: “An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future. Asset bubbles date back as far as the 1600s and are now widely regarded as a recurrent feature of modern economic history Historically, the Dutch Golden Age’s Tulipmania (in the mid-1630s) is often considered the first recorded economic bubble.”

It Cannot Be a Bubble

On August 15, John McAffee on Business Insider wrote: Here’s why you can’t call bitcoin a ‘bubble’.

Curiously, McAffee provided no reason. He did offer a preposterous belief: “I believe that the blockchain is, even now, ushering in a new economic and social paradigm that will rival, if not exceed, the impact that agriculture had in human society.”

The claim blockchain will exceed the importance of agriculture is ridiculous. Even if I am wrong, let’s not confuse the technology with the coin.

Railroads, cars, television all brought tremendous change. History shows bubbles formed around those activities as well.

Four Reasons

The Economic Edge provides 4 Reasons Why Bitcoin Is Not In A Bubble.

It is decentralized. This is huge! It means that it is not under the control of central banks, and thus cannot be manipulated directly by them. This is THE MOST IMPORTANT aspect, it is a game changer as it changes the WHO is behind it – something that gold and silver do not do because central banks have printed “money” to buy the majority of it.

Unlike tulips, dollars, or even precious metals, Bitcoin is strictly limited in its supply. This is where the math comes in. Bitcoin was founded in 2008 and there will ultimately be only 21 million Bitcoin ever mined. Today we are approaching the 80% mark, the remaining 20% will take years to mine, and the “mining” gets more difficult and slow as we go.

Bitcoin is a better store of value because it is secure. Decentralization and encryption make it secure. It can be stored in electronic cyber “vaults” where you keep a hard copy of the encryption cypher. This means that your exchange can be hacked, your computer hacked, but your bitcoin don’t actually reside in either! They reside on someone else’s computer somewhere – and only you have the code to get to it. Thus they cannot be confiscated by a government, a banker, or a hacker.

Bitcoin transactions are stored on a public ledger, all confirmed transactions are included in the blockchain. Again, decentralized bookkeeping is less vulnerable and more secure than centralized legers. This is where Ethereum, another blockchain currency, shines. Ethereum is built upon an encrypted ledger and can be used for many purposes, not just as a currency.