Category Archives: bubble

Here we go Again

In A Random Walk Down Wall Street, Burton G. Malkiel writes:

“It was called the tronics boom, because the stock offerings often included some garbled version of the word “electronics” in their title, even if the companies had nothing to do with the electronics industry. Buyers of these issues didn’t really care what the companies made- so long as it sounded electronic, with a suggestion of the esoteric. For example, American Music Guild, whose business consisted entirely of the door-to-door sale of phonograph records and players, changed its name to Space-Tone before “going public.” The shares were sold to the public at 2 and, within a few weeks, rose to 14.”

60 years later we are seeing companies add blockchain to their name with similar results. Castle in the air theory is in full effect and I expect that most speculators are purchasing these shares simply because they think they will be able to sell it to someone else playing the same game for a higher price. Eventually the music stops, it always does. For better or worse I expect the havoc to the public stock exchanges will be mitigated by the fact that speculators can fill their insatiable appetite buy taking part in ICOs and purchasing cryptocurrencies directly. Do I think we are in a bubble? Absolutely. Do I think that blockchain and the potential of distributed consensus will ultimately prove to be useful? Yes. We are in the early days of blockchain and though not much has come of it yet, I think it’s only a matter of time. The bubble will burst, the hype will die, and the people in it for the right reasons will keep their noses to the grindstone and take this to the future where they’ll be waiting for us.

Originally published on no gradient.

Pop goes the Bitcoin

Cryptocoiners are quite eager to point out interesting and usable features of the blockchain. At the same time, most of them downplay or omit to mention the bad features.

There’s this particularly dangerous feature called processing time. It’s not bad by itself if it is small, but if the time to process the transaction (and thus to transfer crypto coins from one owner to another) becomes too high, the processing time could take an hour or two — or even many hours. It depends mainly on the incoming requests for transfers: while the average transaction processing time is just about 10 minutes, if there are a large number of transactions pending, you might have to wait quite a long time before your transaction is randomly picked from the pool.

To avoid waiting for too long, an interested party can increase the mining fee for her transaction, effectively paying more for faster service. Transactions with higher fees tend to get included in the blockchain faster.

While this situation we might see as a deviation from the ideas of non-governed, non-centralized, egalitarian system proposed in the famous whitepaper, its effects will be even more devastating once the Bitcoin bubble pops.

At that time everyone will want to sell. With a few buyers, the price will start dropping rapidly; sellers would go insane about the processing time, seeing their “money” losing value faster than it can be sold, and prospective buyers might try to cancel already agreed upon transaction because the new price is going to be much lower at the time the transaction finally gets into the blockchain, and they would be at a net cost. So they would double-spend on the transaction with the higher fee to cancel the previous transaction. If the processing time is long (as it would be), this would be an effective strategy for cancelling transactions that have lost the value even before they’re confirmed.

Part of the panicked crowd might start increasing transaction fee just to get their sale trough while the price hasn’t fallen any further, or to simply avoid their transaction timing out in the congested queue, leaving them with the coin that is haemorrhaging value through its jugular vein.

This would explode the average transaction fee, making the transaction more costly and less profitable on already falling value. On the other hand, this would bring more Bitcoins to the miners, but the value would be diminished by the minute, partly because there’s more and more BTC being poured into miners’ pockets: a state of virtual hyperinflation. As the price of BTC falls, miners will get more and more of the coin that is worth less and less, rendering their task as not so much more profitable after all. The negative feedback would require an even higher increase in transaction fees, and there you have it: a hyperinflation cycle in a currency designed to be immune to it.

The delay in processing time is the enemy of the technology: in time when there’s a serious crisis, people want to act immediately; an ability to increase transaction fee would, in turn, create huge inequalities between players, and many would lose. Prospective buyers might take into account the transaction processing time and simply wait for the market to become less volatile to avoid bleeding money; this, in turn, will create a virtual shortage of buyers, driving prices even lower.

BTC bubble might show the characteristic discrete value of digital systems: it might drop to zero (or close to zero) in almost an instant. No steep slope, but a cliff.

I’d also add that crypto exchanges failing en masse under the heavy load would not really help the cause.

As far as many bubbles go, after a steep decline, the market eventually recovers because it still holds some intrinsic real value.

With cryptocurrencies, the only measure of real value are shops willing to trade real value goods or services in exchange for crypto money. The burst of BTC bubble might scare them all away, and if they refuse to accept crypto money this would mean that the whole system is a self-contained bubble that has no intrinsic value at all. It would be like any computer game currency, only without a computer game.

Or is it? Is it, after all, just a clever computer game, set up and left for the watchful observer to observe?

Pop goes the Bitcoin

Cryptocoiners are quite eager to point out interesting and usable features of the blockchain. At the same time, most of them downplay or omit to mention the bad features.

There’s this particularly dangerous feature called processing time. It’s not bad by itself if it is small, but if the time to process the transaction (and thus to transfer crypto coins from one owner to another) becomes too high, the processing time could take an hour or two — or even many hours. It depends mainly on the incoming requests for transfers: while the average transaction processing time is just about 10 minutes, if there are a large number of transactions pending, you might have to wait quite a long time before your transaction is randomly picked from the pool.

To avoid waiting for too long, an interested party can increase the mining fee for her transaction, effectively paying more for faster service. Transactions with higher fees tend to get included in the blockchain faster.

While this situation we might see as a deviation from the ideas of non-governed, non-centralized, egalitarian system proposed in the famous whitepaper, its effects will be even more devastating once the Bitcoin bubble pops.

At that time everyone will want to sell. With a few buyers, the price will start dropping rapidly; sellers would go insane about the processing time, seeing their “money” losing value faster than it can be sold, and prospective buyers might try to cancel already agreed upon transaction because the new price is going to be much lower at the time the transaction finally gets into the blockchain, and they would be at a net cost. So they would double-spend on the transaction with the higher fee to cancel the previous transaction. If the processing time is long (as it would be), this would be an effective strategy for cancelling transactions that have lost the value even before they’re confirmed.

Part of the panicked crowd might start increasing transaction fee just to get their sale trough while the price hasn’t fallen any further, or to simply avoid their transaction timing out in the congested queue, leaving them with the coin that is haemorrhaging value through its jugular vein.

This would explode the average transaction fee, making the transaction more costly and less profitable on already falling value. On the other hand, this would bring more Bitcoins to the miners, but the value would be diminished by the minute, partly because there’s more and more BTC being poured into miners’ pockets: a state of virtual hyperinflation. As the price of BTC falls, miners will get more and more of the coin that is worth less and less, rendering their task as not so much more profitable after all. The negative feedback would require an even higher increase in transaction fees, and there you have it: a hyperinflation cycle in a currency designed to be immune to it.

The delay in processing time is the enemy of the technology: in time when there’s a serious crisis, people want to act immediately; an ability to increase transaction fee would, in turn, create huge inequalities between players, and many would lose. Prospective buyers might take into account the transaction processing time and simply wait for the market to become less volatile to avoid bleeding money; this, in turn, will create a virtual shortage of buyers, driving prices even lower.

BTC bubble might show the characteristic discrete value of digital systems: it might drop to zero (or close to zero) in almost an instant. No steep slope, but a cliff.

I’d also add that crypto exchanges failing en masse under the heavy load would not really help the cause.

As far as many bubbles go, after a steep decline, the market eventually recovers because it still holds some intrinsic real value.

With cryptocurrencies, the only measure of real value are shops willing to trade real value goods or services in exchange for crypto money. The burst of BTC bubble might scare them all away, and if they refuse to accept crypto money this would mean that the whole system is a self-contained bubble that has no intrinsic value at all. It would be like any computer game currency, only without a computer game.

Or is it? Is it, after all, just a clever computer game, set up and left for the watchful observer to observe?

1 big reasons why I am not investing in bitcoin? • TinyStories.io

I won’t lie — I am tempted to invest in bitcoin. I am looking at its number for a long time. I guess I am not alone. Thousands of people were waiting if that magical coin can get over 10k$. And it did. No surprise. And here comes the big but.

But I am still not investing my money, and even more important, I am not investing my time into it. The reason is in my nature. I like gambling. I like it a lot. The idea of getting money without working for it’s awesome; especially if big returns are promised.

So why I am not investing if everything sounds perfect for me? It’s because I made a decision. I am not seeking quick returns. Two things I learned in a short life of mine is that “easy come, easy go” and that “I can have anything but not everything.” I set a mission for myself a long time before bitcoin. And I feel, by investing in it, my focus will shift where I don’t want to.

Bitcoin is a bubble. That’s my opinion. Investing into the bubble without knowledge is dangerous. Its true, people will make a lot of money — but those are few — a lot more people will lose it. Especially because 99% of them seek the same thing as my gambling mind do, and that’s to get rich quickly. The mindset like this will never invest in learning. Neither it has patience and more importantly nerves needed for that kind of investment. Ask yourself what’s going to happen when all these people want their money back?

Currently, I don’t have enough knowledge to fight that bubble before it burst. I don’t want to invest my time into getting that knowledge because it’s gonna shift me from my current mission.

To conclude, I will tell you where do I invest my time.

  • Knowledge — each day I am learning things that will bring me closer to my goals. One of these is to learn more about blockchain technology. I think it’s excellent and revolutionary technology. It’s gonna change the world, and I want to be part of it.
  • Saving money — to invest in things I already know. It might not bring me high returns, but I am sure they will return.
  • Focusing on my core mission — I will become expert & influencer in marketing, e-commerce world. They say you need ten years to get there so for me is worth to invest two years more.

When my first business collapsed, one thing that did stay was me and my knowledge. Nobody was able to take it away from me. With its help, I’ve built the path to the place where I am today.

If you’re looking for an investment with the most promised returns, look into a mirror.

Leo is a Digital entrepreneur & father of 👧🏼👦🏼
Traveling the globe 🌎 with my @your_travel_family

Originally published at www.tinystories.io a project of passion which I am doing with my family. You can Check out what we’re doing here.


Is Bitcoin in a Bubble?

Here’s my definitive answer. Yes, and no.

If you look at the graph above, it screams bubble. That hockey stick curve on the right hand side where the price seems to be “going vertical” reminds everyone that anything that can’t be sustained must end. On the other hand, the fractal like vertical price rise in 2013 seemed to end just fine for those who held through it, and is there an even smaller vertical earlier in 2013? Let’s take a look.

The first bitcoin bubble peaked on November 6, 2010 at the amazingly inflated price of 39 cents per bitcoin. It seemed expensive because it was by comparison of the 6 cent base at which the rise started. You can see from the chart below there’s that same hockey stick followed by a rapid fall. That rise went 650% in just 47 days. You’d expect a correction after a gain like that and what a correction it was. The fall from that peak went all the way down to 20 cents, a 48% drawdown.

Again from that bottom on Dec 4, 2010 bitcoin ran up in bubble fashion to a soaring peak of $1.09 on 2/9/11, just 65 days. As you can see from the graph below, the same vertical like rise from the bottom in a very short period of time, just another 64 days from 20 cents to $1.09, a 545% leap. Well if you’d just made 545% in 64 days, I’ll bet you’d predict exactly what happened next. That 545% rise was followed by a loss of 37% as the price fell to 68 cents.

From a low of 68 cents on 4/4/11 to the next parabolic high took 64 days as the price rose to $29.60 on 6/8/11. That’s a 4350% rise in two months. Again you’d have no problem predicting a correction, and correct it did. From the peak of $29.60 on 6/8/11, the price of bitcoin fell over the next 5 months to just $2.05 on 11/18/11, a fall of 93%. If you were on this rollercoaster and you were feeling queasy, I can understand why.

And it doesn’t stop. From the low of $2.05 in late 2011, the price took a much longer time to go parabolic again. There was a longer basing this time, and a run up to $230 on 4/9/13, around 500 days. For those of you keeping track at home, that’s 11,200% in 500 days. Now look back at those old bubbles. You can barely see the last one and the others don’t even show upon the graph. Of course you can see the crash after the bubble, and the low went down to just $66.34 in 86 days. That’s a 71% drop in just a little under 3 months. Anyone who didn’t sell, deserves what they get, right?

Well, here’s what they deserved and got. From that low of $66.34 the price again took a while to base. It took 5 months for bitcoin to go parabolic again, this time peaking at $1147.25 on 12/4/13. The price eventually fell all the way back to $177.28 on 11/14/15, a much longer basing than we’d seen in any other bitcoin crash. It was an 85% drawdown, and again, I’m sure a lot of people sold. You’re all aware of what they missed if they did, as the price is currently around $7500. Below is that infamous graph at the top of this article showing how after a quiet 7 years bitcoin has just exploded into a bubble.

I think we can see from the other graphs that this narrative of quiet bitcoin is not the best way to see bitcoin. We can maybe get a better view from summarizing the whole history.

The days of the peaks and lows are here with the days between them calculated. The percentage gain and loss is also here. The last column is a ratio of the percent gain from low to high divided by the number of days it took to get there. You can see quite a lot of variability and this may have to do with a limitation of my technique. I’m measuring from low to high regardless of basing. There are probably better ways to do it, I just wanted something simple and objective. On the last line of the graph I’m assuming today is the high, and it’s all over.

If that’s true as so many have been calling for in the last few days, we’d have the smallest percentage rise per time to get there that there’s ever been in bitcoin. The previous smallest ratio is the rise from 20 cents to $1.09 which took only 65 days to get a 545% gain. Comparitively this rise of 4287% took 1011 days. Even if we were only going to match the previous low ratio of 0.084 we’d have to get an 8500% rise in those 1011 days, and as we add days we’d expect a higher peak. That would suggest a price of $15,000 before we’re done.

But this is a silly way to look at it. We can get rid of all these parabolic moves and ratios with a simple technique. We can plot the semi-log chart of bitcoin, which is really the best way to look at a long history chart anyway.

I know it’s harder to read, but you can download it to get a better view. By plotting the semi-log we’re keeping time linear, but plotting the price by percent changes rather than by nominal price in dollars. After all if you have a 100% gain from $1000 and a 100% gain from $10, it’s the same gain. The price doesn’t really matter.

What can we learn from the semi-log chart? Well we can see that bitcoin goes way up above the trend line it’s been in most of the time it’s been around. And it comes down to it. We can see that we could definately get a price of $15,000 and not be breaking new ground, but that after that we would expect a fall back to trend. Let’s say we keep going for a bit and actually get to $10,000 and come back down to trend after a rapid fall within the next 5 months. That trend line is at around $4300. That would be a 57% fall, not anywhere close to the worst we’ve seen in bitcoin. Even a fall from $15,000 to $4300 represents a 71% loss, a little closer to bitcoin’s average.

Is bitcoin a bubble, sure. It is now, and it has been before, and it probably will be again. But the real question isn’t about do we see a bubble, but rather why is bitcoin serially going exponential and back to a long term trend line?

Because it’s taking over. There are only 17 million in circulation at most, and that number will rise to only 21 million at most. Many of those are lost or frozen and will never enter circulation.

All over the world, people are trying to get their value out of the banking system. They bought art, land, gold, condos in Vancouver, anything to get their money out of the bank. Why, because we’re in a generational change. People don’t trust the systems we’ve built any more, and they want something they can trust. Bitcoin, based on a public blockchain requires no trust. Every transaction is there for the world to see, and you don’t need a bank. Unless something better comes along (and bitcoin has first mover advantage) big money will continue to enter the bitcoin space pumping up the price in exponential fashion. And it will fall again. But each time it’s fallen the low has been higher than the one before. Do you really care if you buy at $7,000 or $2,000 if the price will one day be $100,000? Would it matter much to you today if you’d bought at the 2013 high of $230 or the low of $66? Not much.

The other thing to note is that the time it takes for the price to come back seems to be lengthening, so if you don’t have a long time horizon, then perhaps waiting for a fall before putting your bit into bitcoin is the thing to do. In any case, be careful. Don’t invest money you can’t lose, and don’t bet the farm on anything, ever.

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Dr Wetsman is the author of Questions and Answers on Addiction, Healing Stories, and A Beginner’s Second Text of Psychotherapy. He currently blogs at TOCDR.com and consults with medical and other industries on Theory of Constraint process improvement. His current project is Dragonsbane and can be found most days hanging out with people smarter, younger, and more energetic at decstack.

Robert Shiller: “Bitcoin is a Fad” but “I’ll take Bitcoin”

Nobel Prize-winning economist Robert Shiller appeared on CNBC’s “Closing Bell” earlier today. During the interview he commented on the “strange enthusiasm” people seem to have for Bitcoin but ultimately sums up the cryptocurrency up as a “fad”, comparing it to the phenomena of bimetallism. For those unaware, bimetallism refers to a trend that occurred in … Continue reading Robert Shiller: “Bitcoin is a Fad” but “I’ll take Bitcoin”

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Hedge Fund Legend: Is Bitcoin In a Bubble? Yes, But With A Twist

There have been talks of whether Bitcoin is in a bubble or not. A bubble is when there is a rapid escalation of asset prices followed by a contraction. It is commonly used to represent the economic downturn that followed the Internet boom of the early 90s.

Bitcoin vs Internet
The boom brought about by the Internet has some factors in common with today’s Bitcoin rise. It emanated from within the technology sector. It was somewhat new and needed getting used to. Finally, and most importantly, it created innovation and new financial opportunities globally.

Bitcoin has seen several spikes in its price and drawn various interests. Its uptake has drawn concerns as well. Some market observers think its rise would burst like the Internet’s too.
“Bubbles are funny because, historically, manias and bubbles happen around things that change the way we live,” says hedge fund legend, Mike Novogratz. “If it’s the railway bubble or the internet bubble, they really did change the way we live. This blockchain revolution, decentralized revolution is going to change the way we live.”

In an interview with CNBC’s Fast Money, Novogratz notes that the blockchain economy has moved from the experiment to the implementing phase. He likened the unfolding situation to 1997 when no one could have understood ‘the ubiquity of the internet.’

He adds:
“Ten years, fifteen years from now, blockchain’s decentralized system will be everywhere. So, yes, it’s a bubble. It’s going to be one of the great manias of all time. Bitcoin happens to be the bellwether of this entire decentralized revolution. It’s the easiest way that people can get exposure to it.
“Right now, the total market cap of the whole blockchain, bitcoin, ethereum ecosystem is roughly $200 billion. In 1999, the internet got to around six and a half trillion. So we are a long long way from what a mania looks like. Prices will always get ahead of themselves with new technologies. Just like we have gold up and down, there will be big volatility and those stuff and at one point there would be a major correction.”

What’s to come
Novogratz sees Bitcoin as a digital gold that has become a store of value. He suggests Bitcoin is a better alternative to metal gold as a store of value especially for a generation growing up in a digital world.

He says: “But as we move into a digital world, having a digital store of value makes more and more sense. There are limited amount of Bitcoin. A very few people own it. There are about five million people that have crypto wallets and it is a world that all has access. So you have people in Taiwan, Korea, Japan, India, the United States and all over Europe that can participate. I think you got to let your imagine run on this one and things could go for a lot longer and a lot higher.”

Una mirada al bitcoin como un juego

Hace tiempo que estoy invirtiendo en bitcoins y altcoins en general y me pregunto : Son una moneda ? Son un activo ? porque cosas con distinto significado son usadas como monedas que cotizan en mercado ?

Todo esto lo pienso para analizar el riesgo de inversión en el que estoy inmerso. Que pasa si es una burbuja ? o si nunca se acepta como moneda o solo unas pocas son elegidas y el resto no ?
China no dejará operar a sus brokers y no permite nuevas ICOs : se muere el bitcoin ?
El presidente de JPMorgan Chase considera que el valor de la divisa virtual es fruto de la especulación. Explota la burbuja ?

Lo analicé con un modelo macro económico : No lo es.
Quise analizarlo como un activo : no lo es ni se rige por las noticias de las empresas que lo crearon.
No hay reales fundamentals. Todo es Oferta y Demanda.

Pero, si todos deciden irse masivamente ? El valor puede desplomarse hasta cero? Me parece claro que sí, pero porque se irían ?

El Sábado acompañé a mi hijo a comprar una cartas de dioses sagrados (para mí raros) y descubrí un mundo que ignoraba. Jóvenes jugando con las cartas, otros intercambiándolas o comprando y vendiendo. El local comercial oficiaba de punto de reunión informal. Cada carta tiene un valor de acuerdo al poder del personaje, en el comercio te cobran un 20% por sobre el valor de mercado pero en la calle los jóvenes comerciaban sus cartas a precio de mercado o de oferta y demanda ya que siempre hay alguien que desea mas que el otro.

Lo tuve hasta hoy en mi cabeza, y apareció lo que a mi modo de ver es el Bitcoin y las criptomonedas en sí : Un juego de Trading !

Cualquier noticia o hecho concreto sobre criptomonedas son usados como noticias reales del mercado. No existen fundamentals o tienen un bajo impacto, pero se toman las noticias como “reales” porque es parte del juego. Lo único real es el dinero para entrar o el que se gana o pierde en él, y eso lo hace emocionante, trayendo al tablero de juego los temores y las euforias igual que en cualquier mercado.

Como no existen fundamentals que permitan fijar un precio justo de la moneda, se opera con una alta volatilidad (alto riesgo) que genera retornos extraordinarios y eso alimenta la codicia y el deseo por entrar a este juego.

Existe alguna razón para que los inversores dejen de jugar este juego ?

Es difícil prohibirlo porque es descentralizado. Las prohibiciones en china solo generaron que los traders muevan su dinero a brokers de Hong Kong u otros lugares para seguir operando: se mudan de tablero pero siguen jugando.

Además es un juego divertido para muchos, porque dejarían de jugarlo ?

Pueden afectarlo las crisis ?

Las cartas que compré con mi hijo decían : Copyright 1996. Sobrevivieron a la crisis de méxico, asiática y rusa, a la burbuja de las empresas tecnológicas (o punto com), a la burbuja de las subprime, y al crecimiento de los jóvenes. Los nuevos jóvenes siguen jugando e intercambiando sus cartas por valor monetario que al día de hoy encontramos entre los ARS 4 y ARS 1500 cada una (USD 0.20 y USD 80), pero esa carta de mas alto valor, siempre valió lo mismo ? porque vale eso ? porque no vale USD 2 o 200 o 2000 !

Así es el juego, comerciamos fichas, usamos las noticias como si estas afectaran realmente al precio, analizamos las webs de los creadores y seguimos sus avances, escuchamos a los gurúes y volvemos a confiar, nos emocionamos, nos ponemos codiciosos y al minuto temerosos, paranoicos, hasta que sube nuevamente el precio y pasamos a la euforia. Mientras nuevos millonarios surjan gracias al juego, mayor será el impulso y la esperanza, y mientras mas gente entra al juego, mas dinero hay en la mesa y mayor valor toma todo.

Con lo antes expuesto no encuentro razones para que la gente deje de jugar un juego tan apasionante, ni objeciones para que baje 80% para luego subir un 1000%, todo es posible. Con esto me animo a decir que tenemos un gran juego para adultos que perdurará por muchos años.

Bitcoin is a Scheme and “Fraud”: Jamie Dimon BTC Criticism

Jamie Dimon, the chief executive of JP Morgan Chase – has put on another strong support on his previous criticism towards bitcoin, saying that the crytocurrency leader is a “fraud” and he would choose firing anybody who would trade it.

During an even hosted by Barclays, based on the information from Bloomberg and CNBC J Dimon did announce out his feelings for Bitcoin. In November 2015, the long-time critic of the digital currency, stated that Bitcoin will not be able to survive when it was trading at around $400.

“I’m not saying ‘go short bitcoin and sell $100,000 of bitcoin before it goes down,” he said. “This is not advice of what to do. My daughter bought bitcoin, it went up and now she thinks she’s a genius.”

He hoisted up for remark those that have said the cryptocurrency in the market is at a bubble territory. Dimon was quoted saying:

“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”

During the same appearance he did add up that Bitcoin will “be blowing up” and that he would find stupid anybody trading it and terminate them.

After the news spread, based on the data from Bloomberg, many have noticed a drop in bitcoin price. Tanking the price value is still the fear that China will move to close domestic virtual currency exchanges.


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Is Bitcoin in a bubble ? (the definitive answer!)

Early 2000 I received a holiday post card from Indonesia. It was from an acquaintance who had just sold a stock called “Hartcourt”, a Chinese Internet Service Provider and he “was taking some time off”. The stock went up 20-fold within 3 months. He obviously was very pleased to having sold on the top. A couple of months later the stock was worthless.

History repeats itself, does it not?

I recently picked up a Forbes magazine on the airport for one reason: its cover.

In general, the best indicators for bubbles to be bursting is when the assets appear on the front cover of a widely circulated magazine, like Forbes, Fortune or the like. So if Bitcoin was in a bubble, it should burst soon, right?

Frankly, I am not quite convinced about “soon”. If it were to burst, instead of the word “bubble” on the cover and you would expect something like “Bitcoin to $100.000”. The mere notion of pointing out that it is in a bubble indicates that the mainstream does not yet seem to be convinced that “this time it is different”, it is a “new paradigm”, “Blockchain is going to change the world upside down etc.” (I am talking about mainstream, not online forums here!)

I remember, in 1999 shortly before the Tech-Bubble burst, David Elias released the book called “Dow 40.000.”

So where is “Bitcoin 100.000” on some widely circulated magazine, book or the like now?

How to spot a bubble about to burst?

One of the most interesting research on asset bubbles undertaken has been done by Didier Sornette, Professor on the Chair of Entrepreneurial Risks at the Swiss Federal Institute of Technology Zurich (ETH Zurich), who’s book “Why Stock Markets Crash” has is showing his research to general public.

He is claiming in a nutshell that price movements in asset price bubbles show super-exponential growth until they collapse (“log-periodic power law”). So by default, every asset showing super exponential growth is forming a bubble. However, a (short lived) collapse does not mean the whole thing is over — as long as but the amplitude of the swings are getting smaller and smaller and the magnitude of super exponential growth gets bigger and bigger — until it reaches singularity: and implodes for good.


Example of forecasting the burst of the oil bubble 2008, taken from “The 2006–2008 Oil Bubble and Beyond” by D. Sornette, R. Woodard, and W.-X. Zhou

To answer the question — when do bubbles collapse?

Bubbles never tend to collapse on exhaustion. They always collapse on exuberance. There needs to be “irrational exuberance” to coin Alan Greenspan before the collapse. Such exuberance could be witnessed with the collapse of the so called “tulip mania” in the 15th century, where a tulip bulb was selling for the price of 12 acres of land. At the peak of the mania, the price of tulip bulbs went up twenty-fold in just one month.


Tulip price, from an article on Tulipmania here

It happened when the Nikkei and Tokyo Real Estate Bubble collapsed in the early nineties, at a point the price of the land of the Tokyo Imperial Palace was equivalent of the whole value of Californian real estate.

At the point of the implosion of the dot-com-bubble, companies like Internet Capital Group with 50 employees were valued at $60bn+ and the stocks on the Nasdaq went up like 20-fold within weeks.

Just 6 months after the below was released.

So in case you believe Bitcoin is bubble ready to burst, have you seen signs of this “irrational exuberance”? Have people re-mortgaged their home’s to buy Bitcoin like their 5th buy-to-let property in the 2007 housing bubble? Have your taxi drivers talked to you about “investing all their monies in Bitcoin”?

One thing to remember though: The beginning of the end of the tulip mania started after the Dutch government started to develop regulations to help control the tulip mania.

To be continued…

Is Bitcoin in a bubble ? (the definitive answer!)

Early 2000 I received a holiday post card from Indonesia. It was from an acquaintance who had just sold a stock called “Hartcourt”, a Chinese Internet Service Provider and he “was taking some time off”. The stock went up 20-fold within 3 months. He obviously was very pleased to having sold on the top. A couple of months later the stock was worthless.

History repeats itself, does it not?

I recently picked up a Forbes magazine on the airport for one reason: its cover.

In general, the best indicators for bubbles to be bursting is when the assets appear on the front cover of a widely circulated magazine, like Forbes, Fortune or the like. So if Bitcoin was in a bubble, it should burst soon, right?

Frankly, I am not quite convinced about “soon”. If it were to burst, instead of the word “bubble” on the cover and you would expect something like “Bitcoin to $100.000”. The mere notion of pointing out that it is in a bubble indicates that the mainstream does not yet seem to be convinced that “this time it is different”, it is a “new paradigm”, “Blockchain is going to change the world upside down etc.” (I am talking about mainstream, not online forums here!)

I remember, in 1999 shortly before the Tech-Bubble burst, David Elias released the book called “Dow 40.000.”

So where is “Bitcoin 100.000” on some widely circulated magazine, book or the like now?

How to spot a bubble about to burst?

One of the most interesting research on asset bubbles undertaken has been done by Didier Sornette, Professor on the Chair of Entrepreneurial Risks at the Swiss Federal Institute of Technology Zurich (ETH Zurich), who’s book “Why Stock Markets Crash” has is showing his research to general public.

He is claiming in a nutshell that price movements in asset price bubbles show super-exponential growth until they collapse (“log-periodic power law”). So by default, every asset showing super exponential growth is forming a bubble. However, a (short lived) collapse does not mean the whole thing is over — as long as but the amplitude of the swings are getting smaller and smaller and the magnitude of super exponential growth gets bigger and bigger — until it reaches singularity: and implodes for good.


Example of forecasting the burst of the oil bubble 2008, taken from “The 2006–2008 Oil Bubble and Beyond” by D. Sornette, R. Woodard, and W.-X. Zhou

To answer the question — when do bubbles collapse?

Bubbles never tend to collapse on exhaustion. They always collapse on exuberance. There needs to be “irrational exuberance” to coin Alan Greenspan before the collapse. Such exuberance could be witnessed with the collapse of the so called “tulip mania” in the 15th century, where a tulip bulb was selling for the price of 12 acres of land. At the peak of the mania, the price of tulip bulbs went up twenty-fold in just one month.


Tulip price, from an article on Tulipmania here

It happened when the Nikkei and Tokyo Real Estate Bubble collapsed in the early nineties, at a point the price of the land of the Tokyo Imperial Palace was equivalent of the whole value of Californian real estate.

At the point of the implosion of the dot-com-bubble, companies like Internet Capital Group with 50 employees were valued at $60bn+ and the stocks on the Nasdaq went up like 20-fold within weeks.

Just 6 months after the below was released.

So in case you believe Bitcoin is bubble ready to burst, have you seen signs of this “irrational exuberance”? Have people re-mortgaged their home’s to buy Bitcoin like their 5th buy-to-let property in the 2007 housing bubble? Have your taxi drivers talked to you about “investing all their monies in Bitcoin”?

One thing to remember though: The beginning of the end of the tulip mania started after the Dutch government started to develop regulations to help control the tulip mania.

To be continued…

Can Bitcoin Actually Reach US$50,000 in ten years From now?

We have seen some very wild Bitcoin price speculation over the past few years. There are those who compare cryptocurrency to the tulip bubble. Others feel BTC will hit a five-digit price before the end of 2018. The latest price prediction puts Bitcoin at US$50,000 by 2027. A very bold statement, but is it even … Continue reading Can Bitcoin Actually Reach US$50,000 in ten years From now?

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Are We in a Crypto-Bubble?

Cryptocurrencies fall into the same category as fiat currency and art; all three don’t hold any intrinsic value. In contrast, the value comes from what people are willing to pay. This means, the value is people’s willingness to pay. If people decide that ether is worth $1,000,000 tomorrow it would not be a bubble as long as people were willing to pay $1,000,000. A bubble is when an assets price greatly exceeds it’s intrinsic value. Bubbles happen when credit is artificially created. During the housing bubble mortgages were given to people with no ability to pay them back. This injected larges amounts of credit into the economy that could never be paid off. The mortgages that were said to be worth $x over 30 years when in reality they were worth much less.

A better question than “are we in a bubble?” is “does greater fool theory apply here?”. Greater fool theory is when a price is determined by an irrational belief in market participants. Example: I buy Bitcoin at $5,000 because I expect Becky to buy it at $5,050. Becky only wants to buy it at $3,000. I’m a fool. Essentially, greater fool theory is a fancy way of asking “is an asset overvalued?”

In order to determined whether cryptocurrency is currently overvalued, we have to think about all the forces in the market . It’s easy to just look at the fact that cryptocurrency market has grown from $25 billion to $100 billion market in 60 days and think we’re in a bubble. On top of that, in the last year, Bitcoin has gone up ~360%, and Ethereum gone up ~2000%. At first glance this may numbers may seem irrational, and it’s possible that the market is behaving irrationally. However, cryptocurrency usage/utility has also increased in the last year.

One of the most important metrics in traditional stock market analysis is the price to earnings ratio. The underlying value of a business is how much money it brings in, and therefore the price to earnings ratio is a great way to measure its utility relative to its price. When dealing with currencies the goal is to make transactions. Think of it this way: my dollar is worth something because I can go just about anywhere with it and purchase something. The ability to have that easy transaction is the dollars utility. A great metric for cryptocurrency is the valuation ratio. It measures the price divided by the number of transactions. This enables us to measure the relative utility of a cryptocurrency. If you look at Bitcoin’s valuation ratio, it has remained relatively steady since 2014. Ethereum’s valuation ratio is at about 4 times its normal average. 4 times the normal valuation ratio sounds overvalued, but there’s an argument to be made that the average utility of each ether transaction has increase recently, because of ICOs.

ERC20 token ICOs are becoming increasingly popular, and ERC20 tokens can almost always be purchased at the token sale with ether. This is a huge deal, because ether is now opening up a platform that allows companies to raise $35 million in less than 30 seconds or $150 million over a couple hours. The combination of ether and ICOS opens up venture capitalism to the average citizen. This is huge use case for Ethereum and could explain the higher valuation ratio.

There’s also an argument to be made that many of these ICOs create tokens that are overvalued. While, there are going to be ICOs that collapse in spectacular, (VC investments mean VC risks and VC loses). The majority of ICOs on Ethereum have had negative ROIs when compared to Ethereum. Many of these ICOs are raising money with Ethereum. Therefore, the tokens should be worth at least the value of the Ether that they raised.

What about supply and demand? Well from my anecdotal experience at TokenSummit several weeks ago I heard almost every speaker mention the existence of a bubble. Many if not most of the leaders in the space believe we’re in a bubble. If you don’t believe me just search cryptocurrency bubble on google and you’ll find countless articles. Skepticism from the experts in the industry should lower the demand.

Another theme of the conference was that every attendee had their own horror story about a friend or relative who couldn’t create a coinbase account. On top of that I doubt every potential user who wants to invest in cryptocurrency knows where or how to buy it. If you are a high net-worth individual who wants to buy a large quantities of cryptocurrency with fiat you have to get tier 4 clearance on kraken. Then you are going to have to learn how to properly store your own private keys. It’s not rocket science, but learning how to buy and store cryptocurrency does take some time. If you’re a massive institution $100 billion market probably isn’t even big enough yet. All these barriers are blocking potential users, which should lower the demand.

What if the supply is being irrationally held back? The top 1000 wallets hold over $5 billion in ether. Satoshi alone owns 1 million Bitcoin. Many ICOs are holding ether or Bitcoin to pay for future development/operational cost. This could be a problem if everyone decides to liquidate, but this seems highly unlikely to me. The 1% holding 90% the wealth is nothing new. Apple has a quarter of trillion dollars in cash and I don’t know anyone worried about them diluting the value of the dollar. For comparison a quarter of a trillion is about 1% of the worlds narrow money. Satoshi’s potential 1,000,000 Bitcoin is 2.4% of the entire cryptocurrency market. While Satoshi, in his market, is a bigger player than Apple; it is not by an order of magnitude. This leads me to conclude that supply is not at anymore risk than in any other market. Demand does seem to have several forces working against it together this should mean the current market price is actually undervalued.

While $100 billion market for all cryptocurrencies sounds like a lot, this is a brand new technology. Blockchain has more potential utility than any traditional fiat currency. For comparison, all the worlds fiat currency is valued at about $28 trillion. BTC is often compared to gold; all the worlds gold is worth $7 trillion. Cryptocurrency is still a small market. At this point blockchain technology has proven itself. Even if it blockchain is main use case is as a way to store value, similar to gold, that’s a multi-trillion dollar market.

One question I often as myself is, what would happen if gold was discovered tomorrow? It can’t just skyrocket to a $7 trillion market overnight. It takes time. I expect Ethereum and Bitcoin will see some very volatile swings for years to come, but blockchain is a truly useful technology that will/is causing true Silicon-Valley-5.2-Weissman-score-style disruption.

The Man Who Braved the Dot-Com Bubble Calls Bitcoin a Bubble

Mark Cuban, the billionaire philanthropist who made a fortune during the “Dot-com bubble” or the “Dot-com boom” has now categorized Bitcoin as a bubble. A notable personality, one of the “Sharks” in the Shark Tank TV show expressed his opinion over a series of tweets. According to Cuban, Bitcoin is in a bubble which is … Continue reading The Man Who Braved the Dot-Com Bubble Calls Bitcoin a Bubble

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Is the Cryptocurrency Market Experiencing a Bubble?

As bitcoin breaks to fresh highs above $1700 and the altcoin market has displayed a phenomenal increase in value, many in the community are wondering whether cryptocurrency is in a bubble. According to data from coinmarketcap, many altcoins have started to recover, but sentiment remains mixed, begging the question of whether altcoins are due to crash hard, or whether they will remain tethered to bitcoin and follow the most valuable cryptocurrency higher.

There are many reasons why the cryptocurrency market may not in a bubble. Firstly, it could be argued that the fundamental value of these new technologies is slowly being uncovered and explains the recent surge in the valuation of altcoins. The knowledge barrier to cryptocurrency is quite high; first you must get your head around bitcoin, then altcoins such as litecoin, ether, and monero; it may be difficult to most to get their head around what is a good cryptocurrency and the recent surge may reflect a deeper understanding of the ecosystem. Intuition and research take time to hit home and new money is entering. For instance, using the number of poloniex users as a gauge for new money, we see that the number of market participants has increased substantially. On the other hand, the majority of these users may be margin trading, contributing to speculation rather than uncovering value.

Secondly, it could be suggested that cryptocurrency is not a bubble yet, as the majority of crypto market participants are using intuition, technical analysis and quantitative analysis, instead of reflexive behaviour that leads to herding in asset markets and consequently bubbles. For instance, just for the BTC-USD pair, we see there are many original ideas for trades on TradingView, numbering thousands over the past few months.

There are some great analysts in the cryptocurrency space, with a wealth of knowledge, viewpoints and experience. For example, Willy Woo points to the market capitalization to transaction value ratio for bitcoin to highlight that the cryptocurrency is far from being in a bubble. This measure is analogous to the price-equity (P/E) ratio commonly used to assess stocks.

As the chart above shows, the market cap-transaction value ratio is nowhere near the level witnessed in the late-2013 bubble, implying that the true fundamental value of bitcoin is just being discovered and that a bubble is far off.

The events that have unfolded since August 2016, such as the Bitfinex hack, the crackdown on Chinese exchanges and Japan’s accommodation of bitcoin, may have pushed us into a different ‘state,’ toward the realization that cryptocurrency is making progress along the S-curve of adoption.

Also, the framing effect may have influence of our perceptions of whether there is a bubble or not. It could be argued that the fractional reserve system is unsustainable and is the largest bubble of all-time, with stocks, real estate and many other assets overvalued. We tend to think in terms of fiat, so it could be that fiat is in a bubble, and the relentless rise of cryptocurrency is a just a consequence of this.

During an asset-price bubble, market participants engaged in herding become willing to pay increasingly exorbitant prices for popular assets. If the case can be made that the majority of people in the cryptocurrency market are driven by reflexive behavior rather than intuition and creativity on their own part, then we can be certain that we are experiencing an altcoin bubble. Herding behavior leads to a self-reinforcing acceleration of price increases. If we want the price to go higher, we can make it go higher by following others and buying on cues from others. Bubbles are often a self-fulfilling prophecy, which may explain the unbelievable rise of Ripple which displayed growth in excess of 100 percent in under 24 hours during early May.

Twitter user PlatoWright points out an anomaly in the valuation of Ripple, as well as Ether, where the overall market capitalization with future supply included is 60 percent of the value of bitcoin for Ripple and 359 percent for Ether.

Notice for other altcoins, such as monero, litecoin and ether classic, the figure is below 10 percent, suggesting that Ripple and Ether are, relatively speaking, overvalued.

Another reason we may be in the middle of an altcoin bubble is that we are seeing some signs of possible malinvestment. For example, questionable amounts of money being raised through Initial Coin Offerings (ICOs). Since July 2014, around $400 million has been raised via ICOs, most with little to no working prototype. Most projects have not yet launched. Many participants may just be throwing money at these projects hoping for a return, with little knowledge or data to ascertain the riskiness of investing in such ventures, a key ingredient for a bubble.

Low returns in equities and low interest rates around the world is precipitating a flow of money into the cryptocurrency space as well as unfavorable local currencies, which could be augmenting the valuation of altcoins. Also, inaccuracy of the measure of market capitalization may also be distorting investor’s decisions and perspectives.

Zach Herbert, Head of Operations at SiaTechHQ, states the measure of market cap is so powerful because it allows investors to quickly assess total valuation of an asset. But an inaccurate market cap calculation means that you are not able to properly value a token without doing extensive research. And of all the sites comparing cryptocurrencies, it was found that circulating supply was used instead of total supply, misleading many investors.

“Every site we could find that lists out tokens by price, volume and market cap does so based on circulating supply rather than total supply.”

When adjusting for total supply, we see that Ripple, Fargocoin and Gnosis’ market cap’s all increase dramatically, pushing them ahead of Litecoin. Also, the market capitalizations for Stellar, Golem, Storjcoin X, and SingularDTV are deflated when using circulating supply rather than total supply.

Another key detail overlooked when examining market capitalizations is the inflation factor; a new metric recommended to be included in the rankings which will indicate how the next five years of token inflation will affect market capitalization.

When looking at the inflation factor, we see that Zcash has a very high inflation factor exceeding 800 percent, meaning that currently the valuation may be too high. Similarly, ether and ether classic have an inflation factor of 99 percent, while litecoin, monero and PIVX have inflation factors more similar to bitcoin.

SiaTech has reached out to the major cryptocurrency metric sites, such as coinmarketcap.com, coincap.io, cryptocompare.com, to request that they institute these recommendations and could prevent an altcoin bubble from getting too out of hand. With reliable metrics, more sensible investment decisions will be made and it is likely that a higher proportion of market participants will trade based on intuition and creativity rather than following the herd. 

Advances in neuroeconomics may one day identify a bubble in real time, but for now, we have to ascertain the state of the market based on other factors. While it is most certain that bitcoin is not in a bubble, altcoins as a whole may be experiencing herding effects and distorted valuations may be contributing to a bubble forming. On the other hand, some altcoins may be undervalued and it may take a large cryptocurrency crash for the most worthy ones to shine through.

Chinese Regulators Shut Down Bonds Market Trading To Avoid Complete Collapse

The Chinese government has made yet another decision that makes their economy look weaker. Trading in bond future sis no longer possible every since the market crashed in spectacular fashion. It only took the market a few hours to wipe out all bonds market gains made in the past 18 months. China has a volatile … Continue reading Chinese Regulators Shut Down Bonds Market Trading To Avoid Complete Collapse

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Another Bitcoin Bubble? Think Again.

Over the past year, the bitcoin landscape has seen dramatic changes. In the beginning of 2015, the price of Bitcoin was $313.92 and today a quick Google search gave me a price of $456.26.  That’s an increase of about 45.34%. But this article is not about the price of Bitcoin, this article is about why the […]

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