Memories of a Mania

[Zomdifros]

Nice post OP! Although I was quite young at the time, I bought my first stock in 1999 and remember vividly the mania as you describe it. The thing is, it was cheaper at the time to put my money in an fund consisting of various internet stocks and through the last 14 years, it didn't lose much of it's value (although obviously I could have invested it in something better).
 
I believe that an investment in Bitcoin, as a currency/commodity is much more safe than investing in a single company. There might be a period of stagnation ahead, as in late 2011/2012, yet we are still nowhere near Bitcoins maximum potential. Compared to the internet, this is 1995.

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[bassclef]

Thanks Alonzo for your level-headed post.

I'd also like to add that other bubbles (like the real estate bubble) were caused by the Federal Reserve keeping interest rates too low for too long, causing malinvestment. In fact these boom/bust business cycles that bring us recessions and depressions can be avoided by taking the central banks out of the picture.

With Bitcoin, there is no danger of this kind of manipulation.

[w1R903]

Yet very few people actually made money on it.  Certainly not the average joe.  99% of those dot-com mania companies don't exist today.  One of the intents of my post is to say that, yes, something can be super-

I enjoyed your post, but this is false.  Thousands, perhaps tens of thousands of new millionaires were minted.  I personally know several who made a fortune during that time.  Some may have blown it afterwards, but that's another story.

And while I appreciate with the message behind your post, I also think your timing is off by a year or two.  We are at the *very* start of this Bitcoin mania.  Plus, there's a critical difference between Bitcoins and dotcom stocks.  It wasn't the case that with each new dotcom stock owner, the dotcom boom became a better system.  But in the case of Bitcoin, each Bitcoin adopter increases the network effect, which is critical for currencies and payment systems.  So if the worst thing that happens is that Bitcoin is worth $300 after 10 years, then it will be a huge win.   Flat earnings are a bad thing for Cisco, but for Bitcoin flat "earnings" would signal the consolidation of its place as a global currency.  

Nonetheless, I personally think it will go up to somewhere between $1000 and $10,000 before it levels off, but then again that's what I've thought for several years would happen if Bitcoin were ever to gain mass adoption.  So if Bitcoin is gaining mass adoption -- and I think it is -- then my instinct tells me it's still massively undervalued. This is why there is such upward momentum now.

Finally, Bitcoin has already survived one crash.  If another one comes, only one thing will be different this time for me and many others, which is that I'm pouring money into it if that happens.  Because I spent a lot of Bitcoins toward the end of last year, I got caught with my lowest Bitcoin holding in 2 years when the price started to rapidly rise a few months ago.  I won't let that happen again, for sure.

[ltc_foundry]

No one should be faulted for liquidating some of their holdings at historic highs; if I had a deep wallet I'd be selling 5% a week, and holding onto 50% regardless.

[Elwar]

Let us say that you moved from the US to Mexico and in the process converted all of your dollars to Pesos.

Now, let us say that for some reason the Peso started rising against the dollar quickly. All of the sudden your Pesos are able to buy more than you were able to previously and the dollar is losing value.

Do you now convert all of your Pesos to dollars? Or do you just keep your Pesos and use them as currency?

[zemario]

Mmmm... why do so many people keep coming up with this pretentious negative posts. Quite frankly, I invested a relatively small amount of money a couple of weeks ago and right now I'm staring at a 6 fold. I could easily sell a sixth of the bitcoins I own and be immediately at zero risk of loss. What would I say to such posts as OP's in that case?
Also, we're talking about speculative markets with rather big flutuation, people do now that profit is only possible by commiting to risk, heck that is ultimately the definition of market.

I don't know why I reply to this threads, I think it's because I'm high on this insane bitcoin increase of value.

With all seriousness, I think OP, like many authors of such posts, are either:

1. Giving a shot at trying to elevate themselves as fancy market analysts or whatever their fantasy is. It's like buying bitcoins, but instead of risking loosing money you risk looking ridiculous if the values keeps climbing. And instead of earning money you are in for a dumb feeling of acomplishment and being able to say "I told you so".

2. Jealous that they are not in, but at the same time uncaple of admitting so.


Gee, let people gamble a bit, will you? Why do you care so much about others anyway? I couldn't give a rats ass about people that got burned during the dotcom bubble, shit happens. If it would happen to me I'm sure I would sort it out, but I'm not sure how simpathy random people on the internet would help.

[jerkoff]

A characteristic of a bubble is that enthousiasm grows into greed, blinding everyone to the downside and promoting unrealistic expectations. In 2000 stocks went from $2 to $120, and still people cashed out everything to put it all into one stock expecting it to go to $400.
Bubbles don't really happen when the market is just weathered investors, the more fool money comes in, from people with no stock experience, the more the bubble gets blown up. Those people are going to be sorely dissapointed soon.

[meefozio]

Thanks Alonzo for your level-headed post.

I'd also like to add that other bubbles (like the real estate bubble) were caused by the Federal Reserve keeping interest rates too low for too long, causing malinvestment. In fact these boom/bust business cycles that bring us recessions and depressions can be avoided by taking the central banks out of the picture.

With Bitcoin, there is no danger of this kind of manipulation.

This is a fascinating insight that I haven't seen mentioned elsewhere.  Our collective concept of what a "bubble" looks like is directly coupled with central bank manipulation, so to use the term in the same sense shouldn't actually apply to bitcoin.

That's not to say bitcoin isn't possibly overvalued at the moment.

[zemario]

A characteristic of a bubble is that enthousiasm grows into greed, blinding everyone to the downside and promoting unrealistic expectations. In 2000 stocks went from $2 to $120, and still people cashed out everything to put it all into one stock expecting it to go to $400.
Bubbles don't really happen when the market is just weathered investors, the more fool money comes in, from people with no stock experience, the more the bubble gets blown up. Those people are going to be sorely dissapointed soon.

I'm not quite following. So you're saying some greedy guy took his savings, say 50.000 usd and bought  25.000 stocks of some dot com at $2. Then after a while he had (acording on you) 3 million dollars worth of stock. I'm confused, are you seriously suggesting he didn't buy a house, a car, a fancy ring to his wife, I dunno, anything that could worth 50.000 in the mean time. I mean, would he walk around without 50.000 in his bank account but with 3 million worth of stock?

[jerkoff]

A characteristic of a bubble is that enthousiasm grows into greed, blinding everyone to the downside and promoting unrealistic expectations. In 2000 stocks went from $2 to $120, and still people cashed out everything to put it all into one stock expecting it to go to $400.
Bubbles don't really happen when the market is just weathered investors, the more fool money comes in, from people with no stock experience, the more the bubble gets blown up. Those people are going to be sorely dissapointed soon.

I'm not quite following. So you're saying some greedy guy took his savings, say 50.000 usd and bought  25.000 stocks of some dot com at $2. Then after a while he had (acording on you) 3 million dollars worth of stock. I'm confused, are you seriously suggesting he didn't buy a house, a car, a fancy ring to his wife, I dunno, anything that could worth 50.000 in the mean time. I mean, would he walk around without 50.000 in his bank account but with 3 million worth of stock?

If you buy at $2 yes. But these things gain media attention after a large rise already, the majority of the dumb money bought those stocks at $100, looking back at that tremendous gain and fully expecting it to go to $400.

[Peleus]

There's a big difference between stocks and a currency like bitcoin.

Stock values are based on the idea that the underlying company will continue to grow and become more and more profitable. Eventually every company stumbles, or has a few bad quarters, and the investors flee to another stock.

Bitcoin is a completely different thing. There will eventually come a saturation point where everyone on the planet with an internet connection will be aware of bitcoin, and most will have some amount to use for buying and selling. When that happens the price will stop rising. Until then, as long as more people are becoming aware of bitcoin and using it for whatever purpose, the price will continue to rise.

Firstly good post OP.

With regards to this Wormbog it only works if people treat BTC like a currency instead of a stock. The unknown in the current equation is how many people are using it as a currency and how many people are using it as an investment vehicle. We can argue over who is right or wrong with the figures, but regardless, if people are buying it mainly for speculation your first paragraph applies exactly to bitcoins.


To paraphrase you...

Bitcoin values are based on the idea that the underlying concept will continue to grow and become more profitable. Eventually every currency stumbles, or loses a little bit of value, and the investors flee to another investment.

[stochastic]

Yet very few people actually made money on it.  Certainly not the average joe.  99% of those dot-com mania companies don't exist today.  One of the intents of my post is to say that, yes, something can be super-

I enjoyed your post, but this is false.  Thousands, perhaps tens of thousands of new millionaires were minted.  I personally know several who made a fortune during that time.  Some may have blown it afterwards, but that's another story.
...

Didn't Mark Cuban make a billion on some sports website and buy the Mavericks?

[coretechs]

Investing in bitcoin is nothing like investing in a dotcom business.  It's more like investing in TCP/IP before websites exist on the internet.   

[nobbynobbynoob]

That's the thing with speculation. Bitcoin price has shot up because we know, in a best-case development scenario, one bitcoin could easily be worth $100k+ (in terms of today's $ purchasing power) or even more. So there is plenty of speculative demand. The problem is, BTC isn't worth $100k+ now. How patient is the new speculative money flowing in? Are the investors willing to buy and hold long? Believe it or not, some people actually spend BTC as a currency, yes, even during this period of quasi-hyperdeflation!

[unk]

This is a fascinating insight that I haven't seen mentioned elsewhere.  Our collective concept of what a "bubble" looks like is directly coupled with central bank manipulation, so to use the term in the same sense shouldn't actually apply to bitcoin.

That's not to say bitcoin isn't possibly overvalued at the moment.

the major historical manias had nothing to do with central banks.

also, while bitcoin may not be subject to 'this kind of manipulation', it is subject to entirely new kinds of manipulation. mt. gox could be making up trades that bolster the price. without information derived from a true marketplace with transparent, agreed-upon terms, we don't really have any idea what's going on. when i sold a large amount of bitcoins for dollars recently, i still held open the possibility that mt. gox wouldn't let me withdraw my money. fortunately, they did. but you'd just have to trust them to. we just have to exercise blind faith to hope that it is a market that roughly resembles the other (transparent, or at least regulated) markets whose charts we follow.

[johnyj]

This memory is very close, already been priced in 

[im3w1l]

This was cult-like behavior:  rather than believing someone who was bearish had analyzed the data and come to a different conclusion, and that perhaps you could learn from this person, the bear took on a moral quality.  He was a bad guy.  One might even say he was evil.  He's probably motivated purely by nefarious intent.  If he got enough people to disbelieve, those people would convince their friends, and the whole thing would snowball. 

We saw this effect on these very forums during the last mania. Bears were called trolls and silenced.

The sentiment now is not like that. There is much greed, yes, but there is also much fear. Greed might be stronger, but not much so.

[nobbynobbynoob]

I'm "greedy" for sure. But not borrow-money-from-loan-shark-to-panic-buy-BTC greedy, no chance.

I don't mind healthy downward corrective movements here and there: they shake out the weak hands, disperse 'coins and thus are better for bitcoin longer term.

I'm not particularly fearful of a major price crash, providing the core of Bitcoin remains sound. A crash just means: (a) I missed a theoretical (with wonderful hindsight) opportunity to sell at the peak of the previous bubble to buy back in more cheaply and earn a profit; (b) a new opportunity to buy up cheap BTC, one I almost certainly will not miss if it recurs. However, because many others are thinking similarly, I have a strong feeling - and it is nothing more than that, of course - that any downturn will be nowhere near as severe as the -92% bear market of 2011, not even close. Minus 50% could well happen, for all I know, but anyway, a crash just means cheap BTC for the taking.

[johnblaze]

This memory is very close, already been priced in 

ha

while OP is good, who knows where the price will go before the bubble pops. it could go to $2000 before it crashes

[myself]

It all makes sense in retrospect.  If someone as skeptical as me—if the staunchest bear—buys!—then there’s nobody else left on the sidelines to bid up the price.  The lesson for today is: think of the biggest bitcoin skeptic you know, and when he throws in the towel and registers for a Mt. Gox account, it’s time to sell.

well the biggest bear I know said is going to be a bubble and he sold @15USD and did not buy a bitcoins since then