Bitcoin To Suffer The Same Fate As Other Bubbles

Stefan Hofrichter, Allianz’s Head of Global Economics & Strategy has developed 8 criteria to determine if an asset is in a price bubble. According to his evaluation “As a currency and asset class, bitcoin has potentially fatal flaws – which is why we believe it’s a matter of when, not if, the bitcoin bubble will pop. Yet the blockchain technology that powers cryptocurrencies could bring significant benefits to investors.”

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Asset bubble criteria

Of Hofrichter’s 8 criteria, I don’t think all of them apply to every asset bubble, but some definitely do for Bitcoin.

The first is “New-era” Thinking. The phrase “It’s different this time” has led many assets to become overvalued and then have a sharp correction . If digital currencies aren’t “New-era” and “bleeding edge” nothing is. This is similar to the Tech Bubble in 2000 to 2001 when any company that had an i in its name or utilized the Internet seemed to go up in price no matter what business it was in.


Another criterion is Overtrading. Bitcoin volumes have increased almost five times in the last five years. I would extend this to a rapid rise in an asset’s price. It seems a bubble is typically formed (but only visible in hindsight) when there is a swift upward price movement. The upward trend gets investors to pile in and the “greater fool theory” comes into play. Unfortunately, when there is a rush for the exits the price can drop like an elevator.

One criterion Hofrichter has is Significant Overvaluation, but I’m not sure how to apply it in this case. While this makes sense, a “concern” I have about using this regarding Bitcoin is what benchmark to value it. It doesn’t generate any revenue or profits, so traditional methods don’t work.

It does have a cost to create it, but that can vary significantly by what location is used to mine it. Most other assets have some valuation metric, but Bitcoin doesn’t seem to have one. Therefore it is hard to say it is overvalued.

Hofrichter added, “So is this the end of the hype about bitcoin as the future of global currencies? Probably not yet, since speculation in bitcoin and similar instruments appears set to continue for some time. Yet from our perspective, bitcoin has serious flaws: its trajectory resembles a textbook case of a financial-market bubble, and it is lacking several key qualities that would qualify it as a currency.”

https://www.forbes.com/sites/chuckjones/2018/03/16/bitcoin-to-suffer-the-same-fate-as-other-bubbles/#3d431e30ffb6

Personally, I do not want to get carried away by Peter Thiel's grand statement. Statements like his are one of the reasons why the general public do not take bitcoin and cryptocurrencies seriously. Since Peter Thiel is a man of influence, I wish that he tempers his statements and ground it in reality a bit. He should provide some disclaimers and put a reasonable perspective in his declarations. He should stop making any grandiose statements to razzle-dazzle his audience and drum up the value of his investment in bitcoin. I agree that bitcoin can be a good store of value as of this time, but bitcoin is very volatile and it could easily wipe your wealth out when the value plunges. It can be a hedge for shoring up your wealth in times of turmoil, but hardly a safe hedge. Should the price of gold get to zero for example, you can still turn it into jewelry and there are lots of technological applications for it. Bitcoin on the other may be a good store of value but not much else beyond that.

Mr. Thiel is actually doing a diservice to bitcoin and the crypto community in general with his statements. In the spirit of Satoshi Nakamoto (or the team behind bitcoin), I do not believe that the blockchain was created as an asset or a hedge in times of turmoil. It is a tool, a ticket for everyone to get out of the oppressive thumb of the central bankers and corporate giants who are currently running the show, forever burying us in mountains and mountains of debt. It is time for us to grab that ticket and drag ourselves back to real freedom.

A top official at the U.S. Securities and Exchange Commission (SEC) has confirmed the existence of numerous investigations into initial coin offering (ICO) campaigns.

On Thursday, Stephanie Avakian, co-director of the SEC's Enforcement Division, said the agency had "dozens" of investigations that relate to cryptocurrency and ICOs, according to Bloomberg BNA, during an appearance at this week's Investment Adviser Association conference in Washington, D.C. During her remarks, Avakian said that the agency is "seeing a lot in the crypto space."

"We are very active, and I would just expect to see more and more," she told the conference.

Reports that the SEC had issued subpoenas to startups running ICOs emerged earlier this month, though the legal requests appear to have begun last year, as previously reported.

The agency is looking for every detail surrounding token sales, one industry lawyer told CoinDesk.

SEC officials have said previously that they are looking into the space for illegal activity, with a particular focus on token sales. Reports indicate that the agency might also be looking into sales that involve Simple Agreements for Future Tokens (SAFTs), which effectively act as a promise to eventually distribute tokens in exchange for immediate funds.

https://www.coindesk.com/sec-official-says-agency-is-investigating-icos/

I believe that the government should step in and regulate the energy expenditure of bitcoin miners should the allocation of the available electricity for the said enterprise tips the balance towards the minority energy users whose consumption is augmented by mining. Electricity is a necessity for most households and a lot is dependent on it. The interest of many should always be the government's main concern in situations that affect the general population.

Fact - Central bank actions have led to several economic destabilization in the past. The allure behind bitcoin is that it is not under the control of these central bankers thus people who understand the destructiveness of the central banker's manipulations find refuge in it. Instead of money falling under the whims of these self-serving bankers (the Federal Reserve is a private bank-despite the name, and they act to protect their own interest, never that of the general population), bitcoin lies beyond their control and has become a democracy of sorts. And they don't want that. Any attempt to challenge the central banker's hold on their money making powers would always be attacked and condemned by them.

I say let them blabber all their fears, threats and lies. They may be the ones in power now but the situation can be reversed if we, people who would like to see bitcoin grow, would use the power that we have in our hands. We have bitcoin and we can make it mainstream and leave the worrying of the dollar and the other currencies behind. Let us make the push for bitcoin to be the default currency for day to day transactions. Let us not be so anchored in the old ways and be brave in embracing the new frontier, unshackled this time from the debts and encumberances brought about by the central bankers unto us.

I wish the SEC could have made this move sooner, like as early as the time when these exchanges started coming out of the woodwork. Though people are expected to do their due diligence in identifying the trustworthy ones, the lack of a clear and strong regulation of these so called entities have made the market a bit murky. For all we know, the prices that these exchanges post on their website are based on their so called guru's whim which happened to come out of his ass that day. SEC, FinCen, IRS or whatever agency is supposed to be tasked to implement the regulation, let's move from the talk and put the regulations in place.

We'll, if losing your mortgage and putting your family under tremendous hardship is your idea of fun, taking Dominion Capital's offer would be the ticket. You can fall back on the Government's social welfare if things don't pan out, so no worries at all.... or not.

Schemes like these are not really helping the General Public out in terms of leading them to a path of financial independence. Living under the burden of debt without being encumbered by these so called loans is already hard enough. I'd say people will be better off if options like these are not available to them. This is just a riskier version of a get rich quick scheme several times over.

lol... true, the dip actually intensified around the time that Women's day came. A lot of people probably needed to liquidate their holdings or else, no one gets laid. hahaha

I was actually hoping for the price to dip below $7k and try buying on the cheap once it does as it would surely bounce back to $9k or $10k by next month. It may still happen later next week if people are agitated by what's currently circulating in the news.

Bitcoin's swings are really very unpredictable much more so now that the price seems to have leveled at around $10 000 last month. The hourly increments seems to be in the hundreds of dollars and it may not be that far-off when the hourly swings would be in the thousands. Keep in mind that bitcoin will not behave like a regular currency so anything you know about Forex will not have that much of a direct correlation to bitcoin. It's more erratic than a startup's stocks as well so no help from there too.

Been doing some trading lately and having a good read on the cypto community's "mood" in social media gives you a few hours lead on where the swing may go. Hardly a good barometer when trading but better than nothing at all.

I thought that the lawyer holding the Mt. Gox bitcoins already dumped part of the stash that was entrusted to him last year. The $1.7 billion worth of bitcoins that he still have under his control is expected to be unloaded any time in the future to pay off their debts. Whatever his intent is, the coins that he released may not have that much of an effect to the current decline of bitcoin's value. Bitcoin was unable to break beyond $11 600 last week thus the market is trying to consolidate this time around and may level by next week. There may be another attempt to breach $12 000 next month.