[Deep Dive] Three Ways Bitcoin "Bubble" Could Pop

[CryptoFinance]

Hello everyone,

I wrote a fairly in-depth article (https://medium.com/@Truth_Investor/bitcoin-three-ways-the-bubble-will-pop-40678ce11698) on Medium & Seeking Alpha discussing possible catalysts that could leave to a crash. I would love to hear thoughts & discuss. Here's an excerpt of the conclusion, which brings together the most important parts of the article:

==========

Bitcoin is a strong long-term investment for anyone who understands what it offers and its perception by the greater markets currently. There are many institutional investors waiting on the sidelines for moments like this to pick it up cheaply. That dry powder will start getting deployed in bulk at around $2,700 if Bitcoin goes that low.

However, it is always crucial to be mindful of the risks associated with any investment. In this article, we covered the three that I perceive to be the greatest threat to Bitcoin’s long-term future. These three catalysts are:

• The collapse of Bitfinex and Tether as a result of fraud.
• Capital inflows drying up for ICOs as funding channels become constricted through regulations, leading to a significant market decline led by Ethereum.
• Blocking of fiat gateways that enable cryptocurrency exchanges to operate, effectively cutting crypto off from the real world.

I can’t provide much counterargument to the first catalyst. Even though it’s more akin to a conspiracy theory than anything else, I don’t see strong evidence to the contrary. As such, I am monitoring the Bitfinex & Tether situation closely. However, the other two catalysts have some strong counterarguments that we briefly discussed and which I will likely go into more detail on in the future:

• Increased regulations could lead to a boom in ICO funding as it adds legitimacy and attracts wealthier investors who provide the bulk of funding anyway, as evidenced by Filecoin’s ICO raising record breaking levels of capital.
• While China is the obvious headline here, Japan is still pro-cryptocurrency and has the highest volumes in the world. The US has added legitimacy to its exchanges through its association with the Winklevoss brothers, FDIC insurance, and sizable seed funding rounds by venture capitalists.

==========

Which side do you favor? I could see it going either way with ICOs. Depends how far we go with treating them as securities and if SAFT will work.

[Xavofat]

My input on some of these points:

The collapse of Bitfinex and Tether as a result of fraud.

I don't think this would have an effect on Bitcoin's long-term future.  It might lower people's confidence for a while, but the only thing that would stick is opposition to "pegged" tokens.  Mt Gox did not kill people's confidence in BTC completely, as we can see now three years on.  Bitfinex also has a much lower share of the exchange market.

Capital inflows drying up for ICOs as funding channels become constricted through regulations, leading to a significant market decline led by Ethereum.

I agree with this point.  Even though it doesn't affect Bitcoin directly, ICOs are part of what has stirred up the crypto hype in general and the talk of Bitcoin being a "master crypto" has caused its value to rise along with others, so it could potentially fall with them too.

It's also possible that if they were less accessible for investment from ordinary people, those ordinary people also wouldn't be pushing up the value of the token after it's released, in which case richer investors might be less compelled to get involved as well.

Blocking of fiat gateways that enable cryptocurrency exchanges to operate, effectively cutting crypto off from the real world.

In the Western world and in most other places, I don't see this as an immediate threat.

[Mometaskers]

Fraud happens in any field, I don't think that would be enough to deter people who want to make some profit. As for ICOs, let's remember that there are other countries where people are involved in Bitcoin. Sure the Chinese ICO clamp scared people but then others will take their place.

The exchange would be the more problematic of the three. Sure, close enough exchanges and bitcoin would fail but would they do that now? Look at China for example. Those mines are earning them money. Aside from the trouble of people asking their money back when exchanges close (which could cause outrage) how would the miners get their money from the bitcoins they mined? Assuming the government don't outright close mines, the miners could resort to selling the coins some other way.

IMHO if the Chinese close their exchanges, they can soon find themselves isolated from the industry where they had at least some lead. Like many people are saying, Japan is interested. Bitcoin is legal in many countries. A Chinese exit could cause a shock but it might not completely destroy btc.

[CryptoFinance]

I think the Bitfinex / Tether situation will have much more of an impact than shaking people's confidence. People compare Tether's market cap to the total market cap of cryptocurrencies, but what they should be looking at is its trading volumes vs. that of the rest of the cryptocurrency market. It's closer to 5% in this regard if we discount the Japanese exchanges. Also, while Bitfinex doesn't have large a market share as Mt. Gox did, I still think that in the event they are committing fraud, the ramifications will be much worse on the whole industry from a regulatory perspective.

I agree the Western world is the least likely to close exchanges. Japan too. Only real threat I feel to this right now is China.