Why and how the Cryptobubble will burst

https://medium.com/@dennyk/why-and-how-the-cryptobubble-will-burst-de9bc7fc5332

by tmlee • 9 years ago

89 60 9 years ago

Beejeepa• 9 years ago

Sure, it will burst. The Internet Bubble burst. And here we all are.

charlesdm4• 9 years ago

But not before first going up to $5.6tn in value though, and then crashing back to approx. $1.5tn. The entire crypto space is at $200bn now.. :)

ggambetta• 9 years ago

Just yesterday I saw an ad on the Tube[1] - "Buy & short cryptos" / "Copy expert crypto traders" / "Invest in a crypto portfolio", and made me think of cabbies giving stock tips previous to the 1987 crash.

[1] Pic here: https://twitter.com/gabrielgambetta/status/92678756736590233...

[2] Turns out it was shoeshine boys and 1929 (http://archive.fortune.com/magazines/fortune/fortune_archive...), but my point stands :)

charlesdm4• 9 years ago

At a market cap of $200bn, it's hardly comparable. In fact, it's not even a blip in the grand scheme of things.

If this really is a bubble, current prices are cheap (imo) and it will head into the many trillions of dollars. But that's me putting on my speculator hat.

chrisco255• 9 years ago

There will be a shake out, no doubt. The more valuable question to ask and answer is "which" cryptos will survive and thrive and "when" will this bubble burst?

csomar• 9 years ago

Interestingly, the deflation that happened recently in ICOs and Alt currencies seems to have boosted Bitcoin price (as the % share of bitcoin jumped)

While a bubble burst will affect most of the crypto, I wonder if crypto-currencies will survive the effects differently.

xer• 9 years ago

Bubbles are everywhere, one you probably never heard of is called humanity, yes our species.

One significant fuel of blockchain tech is the distrust in the current financial systems. If central bankers and governments could regain trust there is a probable chance of a bust.

PatientTrades• 9 years ago

This article fails to address the major question. Why and how are not important. The only thing that matters is WHEN the bubble will burst. Nobody can answer that question. My best estimate is around the 2020 election cycle when regulation of cryptocurrency becomes a major issue

mgbmtl• 9 years ago

Seems to me mostly a (valid) criticism of ICOs, which are kind of like penny-stock. No one would put all their money in a single penny stock, right?

It doesn't say much about buying stock in companies who have 'blockchain' in their name. Many of these seem like traditional startups (and many will fail), but can any of them provide fast growth? if not, any long term value?

Disclaimer: outsider point of view, I know nothing about this. I stopped using Bitcoin when renewing a domain name would cost me $5 in fees for a $15 transaction.

neals• 9 years ago

It already burst a couple of times actually. Back with MtGox we had quite the burst and a long period of decline. Or how about the 5 times China forbid Bitcon? Burst after burst.

As with the internet: we continued to built it anyway. Adding value to the network in our own way.

I have not stopped working with Blockchain technology no matter the price. I went from millionaire to nothing back to multi-millionaire and I have just kept on working. And I will keep on working, bubble or no bubble, there's always going to be cryptocurrencies and cryptocurrencies-innovation and work for developers and a nice people and fun projects.

tmlee• 9 years ago

The number of bursts can also be summarized from history of heists https://imgur.com/0WDy5Wo

The MtGox magnitude was way way larger than what we have seen so far.

nnfy3• 9 years ago

While I suspected the same, after reading the article, the author does not conflate the bursting of the crypto bubble with the price of BTC.

After this realization I was able to set aside my indignation and observe that the author makes a good point in that most other Cryptos and "blockchainy" startups are doomed to fail, while BTC as he claims will likely recover (he makes some mention of a v-shaped price trend in BTC when the bubble bursts.

bsenftner• 9 years ago

As a developer of these technologies, you're in a completely different situation than the investors. Crypto-technologies have obvious value anywhere privacy is desired, but once productized as a virtual floating asset, the value becomes much harder to quantify, and then the grifters appear. Seems to me incorporating less privacy, a private side-channel for checks and balances of sorts, is something necessary. But I'm not a crypto-technologist, just someone with a graduate economics education, so my impressions may be irrelevant.

lojack• 9 years ago

Privacy is actually a common misconception when it comes to cryptocurrency. More currencies, bitcoin included, are actually the opposite of private – every transaction is completely public for everyone to see. There are currencies (i.e. Monero) that aim to add privacy, but by and large it doesn’t exist.

thisisit• 9 years ago

This one is one hell of laborious read. Though on the top highlight:

This is the reason why things like technical analysis work much better in crypto than in equities, because these markets are quite obviously more likely to be driven by fear and greed than established markets.

It works because as the author puts it " the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life."

In which case, trading is mostly done by reading some trading books. Fundamental analysis tools like valuation etc. are quite vague and don't really provide a simplistic "if a, then do b" answers. So, people turn to TA which is much easier. If a significant amount of people follow it, then it becomes a self fulfilling prophecy.

That said, author also seems to use TA as well:

https://medium.com/@dennyk/trying-to-make-sense-of-the-ellio...

nnfy3• 9 years ago

I think many crypto-currencies (with and without ICOs) are rather obvious cash grabs that provide no actual value beyond speculation (e.g. dogecoin); was something comparable going on during the .com bubble? Were there many companies offering no actual value and taking in cash?

Edit: I originally conflated cryptos with ICOs, and have since corrected the mistake.

Xophmeister• 9 years ago

Dogecoin is a cryptocurrency in its own right, rather than an ICO.

nnfy3• 9 years ago

You're right, I misspoke. My point I think still stands - there are something like 1-2 thousand different Cryptos, many without ICOs, but there is little value in purchasing them, be it via ICO or an ordinary exchange.

deadmetheny2• 9 years ago

Dogecoin was made to take the piss on Bitcoin, not as an ICO. The fact that Dogecoin isn't currently worthless is a testament to how hilariously blind people are to the bubble.

xur17• 9 years ago

I made money buying and selling UET (Useless Ethereum Token) [0]. There were open buy orders on an exchange for more than it was actively available for via ICO for a period of about a week. So naturally I made a bundle buying and selling it. In this case it was the confusing ICO terms that made it profitable.

[0] https://uetoken.com/

3pt14159• 9 years ago

Disclosure: I sold most of my Bitcoin, and I own some Dash and Sia.

cheaper at some point over the next 12 months is extremely high.

I agree with 85% of this post. Except two things:

1. I think people dramatically underestimate the likelihood that Bitcoin and all cryptocurrencies get completely banned. ISIL isn't ransoming civilians for Bitcoin yet. They, or someone else will. Politicians and judges aren't getting contract killed via cryptocurrencies yet. They probably will. Governments are going to give people a choice: we're regulating you (signing transaction reversal with a special US TREASURY key, say, or requiring real identities behind addresses) or we're shutting you down. This even has precedent (eGold in the 90s). I think Bitcoin has a higher chance of surviving this than Etherium because it's less complex of a change.

2. Just because you can call that there will be a Bitcoin pull back in the next twelve months, doesn't mean that it will be less than the price right now. Bitcoin has gone up a lot in the past 12 months and it can go up a lot more in the next 6. If it crashes from $25k a coin to $5k a coin you aren't really giving good advice for what to do today. Personally I hope it crashes to $1k soon so I can buy back in. Feeling kinda dumb for selling at $6k CAD, but it really could hit $50k before the pullback.

eof• 9 years ago

. I think people dramatically underestimate the likelihood that Bitcoin and all cryptocurrencies get completely banned.

I expect this will be almost as effective as the banning of narcotics, pirated media, alcohol during prohibition, etc. It's far, far too late for this to have a lasting effect (though certainly a short term reduction is price is likely)

empath75• 9 years ago

It won't be effective at destroying bitcoin as an effective currency for illicit activity, but it absolutely would destroy the price, because you'd only be able to trade it outside of major exchanges, and without interacting with the american banking system, which would be hard.

notyourday• 9 years ago

Have you tried to move $100k in narcotics around recently? That's right. For an average person it is not worth the risk.

psyc• 9 years ago

The government has more than enough power to prevent banks and investment firms from getting involved, which could significantly limit the pace of future growth in cryptoasset prices.

In the big picture, a tension between mathematics and the law has always been near the heart of the history of cryptanarchy and cryptocurrencies. Sometimes-Satoshi-candidate Nick Szabo has written extensively on this for ages [0]. I'd summarize it like this: 1) The Constitution cannot ultimately protect the legality of any crypto-related activity against a motivated governement. 2) The government cannot ultimately stop P2P crypto-architectures from functioning, although illegally, short of shutting down the Internet.

[0] http://unenumerated.blogspot.com

bootsz• 9 years ago

Just because you can call that there will be a Bitcoin pull back in the next twelve months, doesn't mean that it will be less than the price right now you aren't really giving good advice for what to do today

This. At this point anyone with half a brain knows that there is heavy speculation going on and there is a bubble happening. That doesn't automatically mean you're dumb to be investing, or that those who are still investing surely haven't lived through a speculative market bubble before, as the author suggests.

The only real problem is that many people do not understand the risks inherent to speculation and overexpose themselves to losing money they can't afford to lose. Once you buy into the lie that "the price can only ever keep going up", you're setting yourself up for a rude awakening. But if you properly understand the risks and don't overexpose yourself, you can still invest intelligently.

elif• 9 years ago

That dystopian/authoritarian view is fully valid if you assume globally coherent policing. It is completely in the interest of any fiat-based sovereign to regulate/criminalize crypto into the ground even before adding the terrorism flavor-text.

Fortunately, we are in a position now where the first countries to outlaw crypto will simply miss out on the explosive growth, pushing it into other countries.

If it is extremely difficult to, for instance convert USD into BTC, the USD price of bitcoin will shoot up (as we've seen in Asian markets where banks have imposed defacto currency controls). The arbitrage would then devalue USD on the world market.

nosuchthing• 9 years ago

  Fortunately, we are in a position now where the first 
  countries to outlaw crypto will simply miss out on the 
  explosive growth, pushing it into other countries.

Cryptocurrencies are an opt-in ecosystem, but when a country bans Cryptocurrencies they don't expose the citizens to loss due to trading their fiat for the speculative database coins.

I.E. if the majority of Bitcoins were produced for low cost in China from 2009-2014, than American citizens would be at great disadvantage by trading their fiat for Bitcoins produced at low value input.

hyperion2010• 9 years ago

With respect to point 1. I don't see why terrorist activity would lead to a ban. Bitcoin will always be an extremely small part of terrorist revenue generation and tracking transactions can give intelligence agencies a window into their finances as a result. Seems like an entirely reasonable tradeoff.

joosters• 9 years ago

Why would terrorists want bitcoins, or any currency that has a blockchain tracing the movements of the digital coins? USD are valuable in most places around the world, and are practically untraceable, plus you can actually buy stuff with them.

Shorel• 9 years ago

From what I have seen, Bitcoin is not a single bubble.

It is a endless stream of bubbles, and I see no end in sight.

Each bubble bursts and after a while it starts bubbling up again.

So, yes, it will burst. Many times. But that doesn't mean it will be the end of it.

saas_co_de2• 9 years ago

It also goes along with the stock bubble which is absolutely fueling it.

You have a bunch of people with inflated net worths from their stock holdings who are being sold on Bitcoin as the "new gold" and a way to diversify their portfolios.

cableshaft2• 9 years ago

Just wait until the stock market crashes again and investors need to exit and park their wealth somewhere for awhile. I bet Bitcoin will be one of those places that wealth will go.

DonHopkins• 9 years ago

It's carbonated from all the CO2 it's pumping into the environment.

ryanmarsh• 9 years ago

Amazon survived (thrived) the dot-com burst. I see no reason to believe the same won’t be said of at least one coin. My money is on bitcoin and etherium.

gadhaa• 9 years ago

can someone please tell medium.com to fix their certificates! Error code: SEC_ERROR_UNKNOWN_ISSUER

--firefox-- The owner of medium.com has configured their website improperly. To protect your information from being stolen, Firefox has not connected to this website.

--chrome-- Your connection is not private

Attackers might be trying to steal your information from medium.com (for example, passwords, messages, or credit cards). Learn more NET::ERR_CERT_AUTHORITY_INVALID

Johnny555• 9 years ago

My Chrome on OSX seems happy with their cert. As does Safari. maybe OSX includes the DigiCert intermediate cert that your browser/OS does not have.

mrpound• 9 years ago

This may be caused by a missing intermediate cert on your machine.

tony101• 9 years ago

Shouldn't sites be serving the the full trust chain, except for the root?

jakub_g• 9 years ago

Their config seems top-notch, they send all intermediary certs:

https://www.ssllabs.com/ssltest/analyze.html?d=medium.com

What is your browser/OS?

thinkloop• 9 years ago

On the flip side gold has been in a 3000 year bubble without signs of bursting. The value of gold is far higher than it's industrial/luxury demand.

cjbenedikt2• 9 years ago

"In the crypto bubble, the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life." Any credible data source to back this up. Doesn't sound realistic at all.

charlesdm4• 9 years ago

It's not. Hedge funds have been moving in for a while, some institutional money is getting ready to move in in the next 6 to 12 months.

cjbenedikt2• 9 years ago

Precisely my thoughts....plus HNWIs. BIG difference to dot.com bubble when stocks were peddled by major brokers.

smokeyj• 9 years ago

Blogger predicts bitcoin is a bubble. HN violently agrees. News at 11.

1derful• 9 years ago

Everyone knows that speculation is outpacing the current value of crypto, but unlike the .coms of the 2000s, there is inherent long term utility in the biggest cryptocurrencies. I can't tell what the true value will be, but there is value in these currencies independent of the fact they are trendy investments.

TYPE_FASTER• 9 years ago

The startup bubble separated the companies with some value (Amazon) from companies with no real value, or not enough to justify their existence.

It is challenging for me to separate rampant FOMO speculation from the use of cryptocurrency as a currency (Zimbabwe), but I suspect something similar will happen. The technologies and platforms that enable true digital currency use will end up flourishing for the long term.

warent• 9 years ago

As an aside, it's interesting that Bitcoin can lose 10% of its value in a single day, and the media/bloggers will use language like "slight decrease" or "faded value" to downplay how serious that amount really is. (Bonus points for "The price is stabilizing" when it dips)

If it were possible to short bitcoin, we'd be hearing a very different choir (Edit: I was mistaken, it is possible)

stri8ed• 9 years ago

It is possible to short Bitcoin on many exchanges.

lawn• 9 years ago

You need to see it in the context. All cryptocurrencies are extremely volatile and they routinely go up and down 10%. You simply can't compare the volatility to the stock market where similar numbers would make blood flow on the streets. Here it's almost business as usual.

jokoon• 9 years ago

I wonder, isn't bitcoin much more power-hungry than other forms of currency?

evil_rumsfeld• 9 years ago

Bitcoin's bubble will pop and reform, but it's unlikely to completely burst into oblivion.

kapauldo• 9 years ago

Happy that there isn't much disagreement here. A rational consensus is uncommon on Hn.

chaoticmass• 9 years ago

I don't see how Crypto 'Market Cap' is in any way related to the term 'Market Cap' as related to traditional stock.

Why and how the Cryptobubble will burst

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