Another bubble for Bitcoin?
Over the last forty-eight hours, Bitcoin has hit the headlines once again, this time due to a huge increase in its price.
At the time of writing, according to CoinMarketCap, Bitcoin (BTC) was trading at just under US$7900.00, with almost all of the top twenty crypto assets by market cap, posting positive gains, following a renewed interest in cryptocurrency. Ethereum (ETH), Ripple (XRP) and third-generation blockchain, Tezos (XTZ) have all done particularly well and crypto-commentators have been quick to declare a bull market, with many predicting that Bitcoin will surpass its previous high of US$20,000 in the coming upswing.
On Twitter, @BitcoinBirch cited ‘fear of missing out’ (FOMO) as one reason that Bitcoin will surpass US$20,000, while @danheld pointed to the fact that since 2017, a number of mainstream Apps and services, not to mention major institutional investors, have arrived on the scene, giving a greater legitimacy to cryptocurrency than was previously the case. Others have pointed to Bitcoin’s potential to act as a ‘safe haven’ because of its distributed and global nature, something that is particularly pertinent given current tensions between the US and China.
Although US$20,000 is still a long way off, this has not stopped some from proclaiming that Bitcoin won’t stop until it reaches US$80,000 or even higher. Ethereum World News reported on 15 May, that, according to Josh Rager (@Josh_Rager), if Bitcoin followed the law of diminishing returns, then a rally of some 2,400% could be in order, which would see Bitcoin sitting at $78,500. Not wanting to be outdone, in the same article, Galaxy (@galaxyBTC), predicted that if the current bull run followed the same pattern as that in 2018, then we could expect to see Bitcoin valued at over US$330,000 by the end of 2021.
That is all well and good, and it’s great to be positive about crypto after the long winter of 2018, but are these claims accurate, or just hype that is intended to help lift the market, so that those holding large Bitcoin balances can finally offload them at a profit, to the next batch of new entrants to wander in with their eyes wide shut?
There is no doubt in my mind that blockchain technology and cryptocurrency will play a major role in shaping the future of financial and technological markets, and that we have come a long way since those heady weeks in late 2017 when everyone thought that Bitcoin was the best thing since spray-on tan. But a repeat of 2017’s unbelievable performance? Come on, really?
I’m quite prepared to say that 2017 was a bubble and yes, that bubble burst, with an extraordinarily loud pop. The same thing happened in the 1990s with the tech bubble. And that’s the thing about bubbles, they don’t tend to pop twice, because people are far more wary the second time around and so the bubble doesn’t form. So, while it’s great that Bitcoin is making a welcome return to prominence, I for one, can’t see any reason why we will get a repeat of 2017’s madness. Fear of missing out. Missing out on what? A massive increase in price, followed by an equally massive drop? If that’s the case, then Bitcoin is nothing more than a tool for speculation, which is a shame, because it could be so much more, including that much touted ‘safe haven’ from political and financial instability.
One more comment on bubbles. Shapeshift’s CEO, Erik Voorhees, recently told Cointelegraph that bubbles are an ‘essential part of the industry’s growth’. I disagree. In just about every case where there has been a speculative bubble, including the original tulip mania of the early seventeenth century, people have got hurt financially when the bubble burst, but the underlying industry or market remained relatively unharmed. In fact, in many cases, it forced new innovation that ultimately strengthened it, without the need for another bubble. Just look at the fallout from the dot-com bubble. Millions, if not trillions wiped off the value of tech shares and companies going out of business left, right and centre. But from the ashes rose the global behemoths that we have today, including Amazon and Google, to name but two of the monsters. And if you want a more physical, and prettier, illustration of life post-bubble and the resilience of the underlying industry, just look at the thriving global tulip market that exists today.
Ah, but what about those technical indicators, I hear you say. The candles never lie and besides, it’s all calculated mathematically, so it must be true. Yes, it’s all math, that much is true, but it’s all based on historical data and WATCHWORD ONE of investing is: ‘The value of your asset may go down as well as up. Past gains are not a guarantee of future success’. As for the $80K and $330K claims that are being made for Bitcoin, make sure that you take heed of the most important word in those predictions, which is: IF.
IF Bitcoin does this, then that will happen. IF the market does exactly this, then we can expect that to occur. But, hang on a Stellar-sucking moment. We’re dealing with the most volatile asset class ever unleashed on planet Earth. An asset class that can easily appreciate or depreciate by more than twenty to thirty percent in a day. An asset class so sensitive to rumour and sentiment that it makes traditional markets look absolutely stoic in comparison. Now, I don’t want to gainsay commentators who know far more than I do about how particular indicators work, but I do find it a bit hard to believe that a market as volatile as cryptocurrency will play nicely and conform to traditional measures. I’m more inclined to believe that it will duck and dive like a bucking bronco and we’ll end up somewhere around the US$15,000 mark, if we’re lucky. Call it intuition or OTTOMH analysis (Off The Top Of My Head), but then I saw what happened in 2017 and can’t help but think that the world has moved on since then.
So, what does all of this mean? Well, I’m happy that Bitcoin is moving in the right direction and I’m happy that it’s carrying other cryptocurrencies with it. I’m also really pleased to see the likes of Ripple get a well-deserved moment in the sun and I take it as a sign that cryptocurrency and blockchain technology is starting to mature. My only concern is that overexuberance on the part of commentators and the media are going to trigger another bubble, with disastrous results for the nascent industry. There are some fantastic people out there, developing products that will fundamentally change the way we live in the future and I would hate to see their efforts fail, as a result of greed and speculation.
In short, the hype’s all right, but let’s tone it down a bit and let the market speak for itself.
Rob Gregory is someone who writes books that have nothing to do with cryptocurrency or blockchain technology, but does find the subject absolutely fascinating and has done since early 2017 when a friend told him about it over a beer one evening.