[2017-09-06] Why You Should Worry About A Bitcoin, Crypto Bubble

[White sugar]

My back hairs go up when I see an unregulated financial vehicle that few really understand. When it comes to cryptocurrencies, I have a lot of concerns.

Although I understand the concept behind Bitcoin-like currencies, there's always an issue with how something involving money is regulated. With public companies, for example, you know exactly how many shares are outstanding and what they are worth.

Cryptocurrency values are subject to coding. Blockchain is certainly a worthwhile technology, although I don't think it's as transparent as it should be.

Don't get me wrong. I like the fact that alternative currencies don't need banks as intermediaries. Banks have certainly done their fair share of mucking up the world financial system.

Yet bank rules have never been tougher in the wake of the 2008 credit meltdown. That's a good thing. Cryptocurrencies are on the other side of that fence. They certainly need some regulation to curb bubbles, scams and crashes.

Regulators are at odds over how to regulate Bitcoin and other cryptocurrencies, though. The U.S. Securities and Exchange Commission, an agency that's never been known for its strict regulation, has no guidelines. The Commodities Futures Trading Commission, in contrast, may green light futures trading on Bitcoins.

Where does that leave you, the individual investor? Well, you have to trust the encryption software and market participants that they are pricing cryptocurrencies correctly.

Are some investors driving up the price to speculate? I think that's a fair bet, although that's a problem in any market.

How do you know if Bitcoin or similar currency is in a bubble? Since thousands are entering the market every day and Bitcoin is being "mined" around the world, it's hard to tell. There have been massive sell-offs and there's more irrational exuberance than knowledge ruling that market.

Bitcoin recently passed the $5,000 mark and is up more than 700% as of last week. I even saw an ad that offered a Bitcoin for a magazine subscription. Merchants are beginning to accept them in transactions.

Prof. Robert Shiller, the Nobel Prize-winning economist who's one of the world's experts on manias and bubbles, recently weighed in on the Bitcoin narrative in MONEY magazine:

"It starts with Satoshi Nakamoto—remember him? The mysterious figure who may or may not be real. He’s never been found," Shiller said.

"That has a nice mystery quality to it. And then he has this clever idea about encryption and blockchain and public ledgers, and somehow the idea is so powerful that governments can’t even stop it. You can’t regulate this. It kind of fits in with the angst of this time in history."

To Shiller, to follow the money -- and track a bubble unfolding -- you need to follow the popular narrative and certain telltale statements:

-- This time is different. Yes, cryptocurrencies are unique because they are created through blockchains. But does that make them immune to human nature? I doubt it.

-- Greed and Fear Don't Apply. Well, I don't know when that's ever been the case. Although computers around the world are monitoring encrypted transactions, it won't block out speculators.

-- The idea is bulletproof. And they said that about tulips, swampy real estate in Louisiana/Florida and tech stocks. Blockchain will change the world in its own way, but it won't curtail greed, which overrules common sense. And crashes will happen.

-- Bubbles Can't Be Seen in Real Time. I've heard a lot of economists say this. The last one was Alan Greenspan, who refused to say there was a credit bubble in 2006-07. We all know what happened in 2008.

I'm not saying that you shouldn't invest in cryptocurrencies, just treat them like the volatile vehicles they are.

Would you load up your entire portfolio on tech stocks or mortgage derivatives? If the answer is no, then I think you'll have some degree of protection against the next bubble bursting.


https://www.forbes.com/sites/johnwasik/2017/09/06/why-you-should-worry-about-a-bitcoin-crypto-bubble/#2a4f3ddb5130

[iamTom123]

Cryptocurrency as the new form of money is just another man-made innovations and although the blockchain technology behind it is heralded as really innovative and revolutionary, we have to understand that anything man-made can never be perfect and when utilized by interested parties human nature can come in. To be honest, it is human nature that can wreak havoc in a supposedly precise and well-planned idea. Being humans, we are subject to greed and selfishness...we tend to only think about ourselves and what we can get out of something. The same is true here in Bitcoin.

Although I am not saying that a bubble can occur soon, it is true that we should never closed our eyes for such a possibility because anything can happen. True, comparing Bitcoin with a tulip may not be doing some justice as certainly both are so different from each other.

As good investors and speculators, all we can do is be watchful for trends that can affect Bitcoin and just pray that a bubble will never happen anytime (and if there is that it will not be popping like popcorn). I understand that corrections are serving as buffer zones against a big bubble pop.

[buwaytress]

He's right that bank rules have never been tougher since 2008. But take a look at the vulgar scale of financial crime uncovered by the banks since 2008. They just keep getting higher and higher. And guess what? Tougher rules don't seem to bring repercussions worse than fines and stiff warnings - the economic equivalent of a slap on the wrist.

Not one bank has been faced with criminal charges, or had their licenses stripped. Ask any big bank for their budgets and you will find many millions earmarked for bank fines and compliance penalties. That's right, they budget for these fines and penalties because they still make a hell lot more evading the "tough rules" in place. Crime has and will continue to pay for them.

That's what we should be afraid of. Not the "bubbles, scams and crashes" of crypto.

[Samarkand]

He's right that bank rules have never been tougher since 2008. ...

The most damning development is that Trump is actually about to roll back several of the restrictions
that have been put in place in the US after the financial crisis:
http://www.independent.co.uk/news/business/news/donald-trump-dodd-frank-major-haircut-banking-law-regulation-loan-money-promise-slash-a7667331.html

That means that banks not only didn´t get their licenses pulled, but they will actually have less compliance costs in the future.
As much as I agree with Trump on several other issues, he is really creating a windfall (several billion $ per year)
for the US banking industry with these Dodd-Frank rollbacks.

[Xavofat]

Are some investors driving up the price to speculate? I think that's a fair bet, although that's a problem in any market.

The difference is that it's very difficult to tell when the price is fueled by speculation in cryptocurrency. 

In stocks, you can say "here are their quarterly profit performance, here are the customers of the company, their demographics", etc.  In crypto, there aren't enough fundamentals to clearly peg the price down so all you can rely on is vague ideas of how much merchant usage there is at the time, which isn't a fair way of thinking about it considering that crypto serves as more than a currency.

So all you can do is sit back, be very careful and try to measure the sentiment of people that are involved in it.

[Flyyyy]

Are some investors driving up the price to speculate? I think that's a fair bet, although that's a problem in any market.

The difference is that it's very difficult to tell when the price is fueled by speculation in cryptocurrency. 

In stocks, you can say "here are their quarterly profit performance, here are the customers of the company, their demographics", etc.  In crypto, there aren't enough fundamentals to clearly peg the price down so all you can rely on is vague ideas of how much merchant usage there is at the time, which isn't a fair way of thinking about it considering that crypto serves as more than a currency.

So all you can do is sit back, be very careful and try to measure the sentiment of people that are involved in it.

I do not see anything wrong with the fact that the price of bitcoin is growing thanks to speculators. This allows us to buy coins at a time when the price goes down and sells when bitcoin is expensive. Thanks to such fluctuations, we can earn

[Wekkel]

I do not see anything wrong with the fact that the price of bitcoin is growing thanks to speculators.

I would tend to say that speculation fuels new industries/tech. The speculation leads to disappointments in the future (the losing projects) but is essential to garner enough users of new applications and attract enough capital to build the necessary infrastructure.

The hype will go away at some point, but the infrastructure stays.

I think the core question is: what do you trust more:

• currency, opaquely issued centrally (as debt), governed by an untouchable group of persons, heavily regulated and permission-walled
• currency, transparently issued by code (as irredeemable token), governed by several factors (miners, coders, users) in a certain decentralised, openly visible and 'free admission' type of manner, fully digital, permissionless

I know my preferred choice. Do you know yours?

[buwaytress]

He's right that bank rules have never been tougher since 2008. ...

The most damning development is that Trump is actually about to roll back several of the restrictions
that have been put in place in the US after the financial crisis:
http://www.independent.co.uk/news/business/news/donald-trump-dodd-frank-major-haircut-banking-law-regulation-loan-money-promise-slash-a7667331.html

That means that banks not only didn´t get their licenses pulled, but they will actually have less compliance costs in the future.
As much as I agree with Trump on several other issues, he is really creating a windfall (several billion $ per year)
for the US banking industry with these Dodd-Frank rollbacks.

That's right. Not only do banks get away with a chiding, they then get a Trump-style wink of the eye and are rewarded for their misdeeds. For all the noise that the US government is making about overseas monies and tax losses from errant earners, internationally, American banks have always been seen as the next best thing in terms of tax havens. Business is getting brisker with the noose tightening on all the recognised offshore jurisdictions, and the US is pipped to be the next favourite destination of the world for stashing away their millions.

All the lip service moaning about other havens and Bitcoin skirting their precious FATCA, while Rothschild and co continue to ignore OECD's international common reporting standards.

[FrueGreads]

This is a hard subject for me. I do worry about Crypto Bubble, as right now I'm just holding bitcoins, and I just don't know if it's price is due to it's value, or is just the result of speculation from some investors. I mean, it's current capitalization is beyond the common user, so I think it's true that there are some investors that hold huge amounts of bitcoins, and that they could probably be able to crash the market if they decided to sell.

At the same time, I do believe in the utility of bitcoin as a currency but I also think that it needs to get stable in order to fulfill that purpose, otherwise it would be impractical to carry a business using bitcoins.

I guess I'm advancing with caution here. I will hold some, but also sell a few from time to time, so if the market crashes, at least I didn't lost everything.

[akeegan]

It's a scary thought especially for those holding quite a bit of investments. But once it stabilizes due to government regulation, bitcoin and crypto will be widespread.

[Von Braun]

Of course we are in a bubble. That is not the question. The question is are at the beginning of a bubble or at the end?

[greeklogos]

Of course we are in a bubble. That is not the question. The question is are at the beginning of a bubble or at the end?

I think we are in the most beggining of the babble. The prognoses of bitcoin experts came true this month when bitcoin reached 5000$ point as many of them predicted for this year. But if to listen them the prognose is 20000$ per 1 BTC in nearly future and I'm used to believe in that. So for now we are slowly going to the middle of the babble.