Bitcoin Was a Bubble and It Popped

https://www.bloomberg.com/opinion/articles/2018-12-11/yep-bitcoin-was-a-bubble-and-it-popped

by taytus • 8 years ago

64 96 8 years ago

As it has done multiple times previously. I anxiously await reading why this time is "different", just like all the previous times.

ummonk• 8 years ago

This is the first pop that I’ve felt is likely to be the last. A lot of people got burnt and are unwilling to jump back in.

devereaux2• 8 years ago

All of this has happened before, and all of this will happen again.

EDIT: and I stand by my claim.

ascendantlogic5• 8 years ago

How many people got burnt in the dotcom crash? In the financial crisis of 2007-2008? Black Monday of 1987? Did all of those people swear off investing in traditional equity instruments forever?

Obi_Juan_Kenobi2• 8 years ago

So far Bitcoin investor behavior has been remarkably consistent.

https://plot.ly/~unchained/37/bitcoin-utxo-age-distribution/...

There's a lot to dissect in this chart, so take some time with it. Some observations:

* Most of the market is traded during bull runs. Each bull run sees a large segment of year+ holders take profits. Between bubbles, price-discovery is driven by short-term trading.

* Bear markets see remarkably little activity from holders. 'Hold waves' form between bubble cycles that clearly demonstrate that the majority of coins are held by 'firm hands' that bought in bull runs.

* Right now, a large segment of people that bought in the 2013 bull are starting to mature into the 5+ year bracket. A significant amount of coins are still being held in this way. It's remarkable to see it in real time. Neither the crash to $150 or the run to $20k motivated a large selloff.

* It took about 2 years after the 2017 bull for <6month bracket to fall to ~25%. It only took one year this time.

* Age distribution is becoming more bimodal: stubborn holders and large healthy active market.

* The current price crash is rather anomalous. An incredible 4% of coins in existence moved out of 3+ year bands very suddenly. This is among the 3 or 4 largest shifts, the others occurring in much different contexts. Given how sudden it was, and how specific the age band, I have my guess as to whether this is a cause or effect of the drop.

The main takeaway from this is that Bitcoin investors are remarkably willing to hold. "Hodl" is more than a meme, and the current crop seems about the same as previous ones in this regard, with a growing 'hold wave'.

I also think the last 'pop' was a lot worse due to the looming existential scaling threat. This has been addressed in an unoptimal way, but one that is remarkably true to Bitcoin and overall encouraging.

trothamel• 8 years ago

Arguably, because this time it's 'mainstream' - with people pushing bitcoin as an investment for non-technical people.

themgt• 8 years ago

Because the previous times it wasn't being hyped in mainstream news and culture. The point where the guy on the elevator is taking about [bubble] is the point at which [bubble] is about to burst for real, because you've just about run out of new suckers to fuel it.

morgancmartin2• 8 years ago

Would you be willing to make a friendly wager on whether it returns bigger than ever? My ten dollars says it will within, say, two years. What do you say?

disishhsha• 8 years ago

I could still see it getting bigger - you can’t buy a bitcoin ETF yet. Not saying it’ll ever happen, but there are big pools of money out there that haven’t touched crypto yet.

whytaka• 8 years ago

I laughed when the guy on the elevator told me he was selling his bitcoins at a loss because he heard other people on the elevator talking about it.

ScottAS4• 8 years ago

Well, the gold bubble has yet to "permanently" pop, and has been through multiple phases of mania - an arbitrary substance worth trillions of dollars which our entire supply of fits in 3 olympic swimming pools. Socially agreed upon value can potentially last for generations without any fundamental sense.

panarky• 8 years ago

It's damn difficult to discriminate in advance between a bubble and a Revolution der Denkart [0].

The presence of hype, fraud and large fluctuations in prices do not invalidate new technology or concepts.

The dotcom "bubble" was a hypefest, then it deflated, but the underlying technology and concepts have spawned something many times larger than the original bubble.

If it turns out that cryptocurrencies have no purpose beyond a small niche, then we'll see in hindsight that it was indeed a bubble.

But if creative people find a larger use for cryptocurrencies, then hindsight will understand the 2018 "crash" as just another in the fractal series of price declines followed by even larger price increases.

Since the underlying technology has withstood sustained attacks across the technical, economic, political and legal domains, perhaps reports of its death are premature.

[0] https://books.google.com/books?id=sRYW1wtdER0C&pg=PA136&lpg=...

Ologn• 8 years ago

It's different because when the market cap of Bitcoins was less than one million, an 80% drop or pop did not mean much. One somewhat wealthy person could pump the price up at will.

When it hits a market cap of $334 billion, it becomes something more real. That is when Warren Buffett and Charlie Munger take a look at it and declare it something to avoid "like the plague" (Munger called Bitcoin "rat poison"). The greater market looks at it and it drops 80%.

Bitcoins are completely worthless. They have no value whatsoever. So the entirety of its current supposed market value of $61 billion (which was supposedly $334 billion a year ago), is closer to $0 than $61 billion.

Many overpriced dot-com stocks in 2000 or over-priced real estate in 2008 are still things which have value, even if the price went down for a while. Bitcoins have no value. I said so when the market cap was supposedly $240 billion ( https://news.ycombinator.com/item?id=15986475 ), I say so now, when the market cap is supposedly $61 billion, and I will say so until its graph starts hitting the $0 limit.

People say "it's valuable because it can be traded electronically", which is meaningless. Dot-com stocks could be traded electronically in 1999. The important thing is the value underlying what is traded. Bitcoin has none.

reidjs• 8 years ago

Why’s it still so darn expensive then?

gargarplex• 8 years ago

Venture investment in Blockchain went up in 2018. The median deal size increased over $1.0mm and the number of deals is also up. [1] Once the ecosystem of complements matures, Bitcoin's utilization is expected to increase. [2] The price of Bitcoin is driven by speculation that utilization of Bitcoin creates value. [3]

[1] https://medium.com/@PanteraCapital/market-update-pantera-blo...

[2] Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers. Paperback – January 28, 2014

[3] https://www.investopedia.com/articles/investing/091814/what-...

verdverm3• 8 years ago

Private blockchain seems to be crossing the chasm at a much better place. Bitcoin has yet to offer something of value to the mass market. My money is pretty much digital already, and I'm not really down with my transactions being out in the public. Perhaps another crypto currency will meet the needs of the major market, though I have a hunch the current financial institutions will get there first.

jeron• 8 years ago

to add to this, adoption rate for cryptocurrency increased this year as well

https://www.investinblockchain.com/cryptocurrency-adoption-r...

NeoBasilisk• 8 years ago

Because [a rapidly diminishing number of] people still believe that they have value.

kornakiewicz• 8 years ago

Compared to what?

criddell• 8 years ago

Compared to a transaction at a bank, via PayPal, a credit card, or just about anything. Is there a more expensive (financial and environmental) way to make a transaction?

moate• 8 years ago

Actually useful things. Established currencies. A sack of beans

jboles2• 8 years ago

There’s millions/billions in sunk costs embedded in them, in the form of electricity bills already paid by miners. But being sunk costs, they do not contribute to any intrinsic value on their own.

m3kw9• 8 years ago

That’s a relative term, is like saying amazon is expensive st 1500 as opposed to 15 after did a 100:1 split. The point is no one knows how to price BitCoins and what to base the price on. At the current price point it could go up or down based on how happy people are with it, almost zero fundamentals to say what is worth.

geezerjay2• 8 years ago

The point is no one knows how to price BitCoins and what to base the price on.

That's because bitcoins base price is a very round zero, and the only value associated with them was derived purely from speculation and prescribed prices used in money laundering operations.

WorldMaker2• 8 years ago

By "it" do you mean Bitcoin?

Because it is designed to be deflationary?

Because its (energy cost) overhead is still sky high and likely to remain reflected in prices?

Because it is the "brand name" market with whatever caché remains to that name reflecting in prices?

Because sunk costs of existing investors want to keep the price high for as long as possible?

Those are just a few of the more obvious reasons. Not that I think it's any one thing here, it's probably some admixture of the above and other reasons.

belltaco3• 8 years ago

Because its (energy cost) overhead is still sky high and likely to remain reflected in prices?

This is a huge fallacy.

KasianFranks3• 8 years ago

Like the dot com bubble, and here we are today bigger, better and stronger. Think in terms of a public trading vehicle that enables anyone to raise capital in a global marketplace. Either real value gets translated to that vehicle or it does not.

the_gastropod6• 8 years ago

"Everyone said Bob was an idiot for playing the lottery, but look at him now!"

"<X> is a $10 Billion/year industry! If we could just capture 1%..."

Just because some other thing was successful doesn't mean your pet thing will be successful too.

KasianFranks3• 8 years ago

So lets just stop innovating right here right now. Bad logic.

pazimzadeh2• 8 years ago

Buy low, sell high.

vkou2• 8 years ago

Or buy low, sell lower.

You're just gambling.

pazimzadeh2• 8 years ago

The trick is not to sell lower.

And if you sell enough when it's high, then you're not gambling any more.

vokep• 8 years ago

Sure it did, oh man, ah jeez, I'm so sad my bitcoins are all now worthless, gosh, the price is...so...so low now...

buys 5 more

abstrct4• 8 years ago

"Millennials, like generations before them, just got a painful lesson about speculation." and yet the first tweet is from McAfee... I know life has been hard to him but that is one very aged Millennial.

Just add this bad article to the 300+ Bitcoin Obituaries, and the even more writings that try to point out the hard lesson learned by us idiot Millennials.

A reminder that some Millennials are almost 40 now, we were the first generation to grow up with the internet, and we lived through things like the dot com bubble and the 2008 housing crisis. What could we possibly know about technology and money? What could we possibly desire to see possible change and improvement in?

kokokokoko• 8 years ago

Cryptocoin speculation will likely be remembered closer to beanie babies or baseball cards as opposed to the dot com bubble etc.

This was just the first time we saw this happen globally and with digital goods. Which, possibly coincidentally, happened to baby boomers right when they were around the same age/point in life as the millennial generation is now.

Obi_Juan_Kenobi2• 8 years ago

A weak defense of Bloomberg here: it was a bubble/pop, and this wasn't an obituary. They actually resisted calling it dead. The story was more about the dangerous of 'bubbly' assets, which is entirely legitimate. Obviously the millennial angle is dumb, but meh.

abstrct4• 8 years ago

Totally fair comment. The author does admit that they themselves are still holding, so an addition to the obituaries isn't accurate. I think the millennial part just frustrated me.

NathanCH• 8 years ago

I would love an analysis on who is moving the market today. In the last month there have been three occurrences where the price of BTC jumped 10% in a single moment (followed by equal sell-offs hours/days later).

Stranger still, all coins seem highly correlated. BTC goes up, all coins go up.

I realize this behavior is not new and the market has been highly correlated since the beginning, ...but why?

jboles2• 8 years ago

In a stock market, some companies outperform others by being more valuable at one moment than another. The difference in value results from differences in the companies’ expected future cash flows.

Crypto coins, despite ICO promises, have not historically been revenue generating assets, so there is no future cash flows generated by them. Thus they can be considered fungible, retaining the same value despite their different symbols and nominal prices. With the level of distrust in the ecosystem, only “bad” news affects a given ICO, sending its value to zero. Neutral news, or good news, does not increase a given coin’s price, so they all settle around the same “value”, and all their “values” move together.

When anyone or their pet monkey can clone a Git repo, change some variables, and launch their own ICO with zbsolutely zero proprietary innovation, it is to be expected that all crypto coins will approach the same value.

(I put “value” in quotes because different coins have wildly different prices, being a function of some variables in the coin’s software determining e.g. how many were “issued”, but you have to ignore those prices and instead think about the underlying “value” represented by the coin. It’s really not much at all — perhaps only the sunk cost of electricity, but likely less than even that.)

I would also love an analysis on what is moving the market. It has to be more than Tether at this point.

cesarb• 8 years ago

Stranger still, all coins seem highly correlated. BTC goes up, all coins go up.

My current theory is that Bitcoin is the "reserve currency" of all these coins. That is, their price is better understood as being expressed in Bitcoins, not in USD or other currency.

abstrct4• 8 years ago

Most exchanges that have coins other than Bitcoin use Altcoin/Bitcoin pairs. So you're not trading in relation to the US Dollar, you're trading in relation to Bitcoin.

For a trader, that means that to them 1 ETH is currently worth 0.02678663 BTC. The USD price of Bitcoin doesn't come into play here. So, if Bitcoin goes down, the relation to ETH means that it follows, since 1 ETH is still worth 0.02678663 BTC.

Edit: Why would they do this? A number of reasons, the biggest two being habit and volume.

Most coins are traded on networks that don't have fiat currencies, so they had to choose a cryptocurrency base. Also, many traders in the realm started out with Bitcoin, and love Bitcoin, and want more Bitcoin. So they don't care if a trade gets them USD, they just want to grow their BTC holdings.

Finally, with trading, volume is very important - you want as much being offered for sale as possible. If you split up every order book (btc/eth, xrp/eth, ltc/eth, usd/eth, xrp/ltc, xrp/usd, ltc/btc, etc etc) then the volume of each 'book' is divided amongst the options, making it harder to move larger amounts from one to the other.

yellowapple4• 8 years ago

This article lost all credibility when it had managed to frame itself in a "haha stupid millennials" attitude by the very first sentence.

apo• 8 years ago

The Bitcoin hype cycle is driven by the mass media. Like this article, they pile on when BTC/USD exchange rate falls through the floor.

During the period of stability that follows, they're nowhere to be found.

After things have already turned around, they jostle with each other in an attempt to explain it all to Joe Sixpack.

What the article fails to mention is that each "pop" has left the exchange rate higher than the previous top.

Missed opportunity to investigate an emerging asset class with no direct analogy to anything preceding it, periodic manias or not.

will_brown• 8 years ago

The Bitcoin hype cycle is driven by the mass media.

It’s much more nefarious...the boom and bust articles are essentially ordered by individuals/groups with the influence as part of the market manipulations. It’s not entirely unlike what people refer to as submarine articles, what’s lurking underneath these publishing’s are attempts to move the markets (the first wall street movie actually does a decent job of demonstrating this practice in the 80’s for the stock market).

These details will be exposed now that the SEC is beginning to target manipulations in these markets.

bitxbitxbitcoin• 8 years ago

Bubbles only pop once. Bitcoin has spiked and crashed multiple times and it isn't unreasonable to expect it to do so again.

Eventually, we might see the terminology change from "bubble" to "spike." It's already happening... Albeit slowly [0]. Can anyone think of a better term?

[0] https://trends.google.com/trends/explore?date=all&q=%22bitco...

orev• 8 years ago

A spike is something that happens and completes in a very short period of time, not drawn out over a year like this was. The terminology used pretty clearly follows the shape of the price charts — there’s no need to try to redefine terms to meet whatever point one is trying to make.

matchagaucho• 8 years ago

I knew we were at peak in Dec 2017 when a fellow tourist in Mexico proclaimed his iPhone was stolen, apparently along with his BTC wallet, and he no longer had funds to continue the vacation.

shuntress• 8 years ago

The thing that really bothers me the most about crypto trading is all the wanna-be day-trader bros who fundamentally misunderstand what they are actually buying and selling.

"Open source distributed transaction ledger" sails right over their heads but if I said I hand out a new dirtcoin to whoever moves the most dirt around my yard each day and here are some exchanges carrying dirtcoin I'm met with an avalanche of Wall Street jargon about how dirtcoin is the best investment anyone can ever make.

vminkov• 8 years ago

What we won't tell you is that many investors have realised that the price will fall freely if the supply can't be limited in demand drops. And they are now seeking to gain control over as much of the circulating supply as possible.

wtracy• 8 years ago

Either McAfee was being facetious in that tweet, or he was smoking something good.

It's one thing to believe that Bitcoin is the future, it's another to believe that "Bubbles are mathematically impossible in this new paradigm. So are corrections and all else."

Bitcoin Was a Bubble and It Popped

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