[2017-09-21] 4 Reasons Why Bitcoin May Still Blow Up

[Eric Cartman]

Call me a cryptoskeptic. There are too many unanswered questions about cryptocurrencies and they are not immune from the perils of speculation and fraud.

I've been interviewing people who are not only tech savvy, but considerably more optimistic than I am about the future of cryptocurrencies. Although I believe the idea of alternative currencies is a good concept, we need far more oversight before they are legitimate.

Let's start with the harshest criticisms:

-- Fraud is Rampant. We have no way of telling what's going on since Bitcoin and its sister cryptocurrencies aren't on exchanges and are completely unregulated.


Since transactions are encrypted, it's said that bitcoins are used for illicit exchanges, although I have no good way of proving that.

Although Jamie Dimon, JP Morgan Chase CEO, said "bitcoin is a fraud" last week, his bank is apparently investing in the cryptocurrency, so they're hedging their bets.

Big banks, we should note, have a vested interest in the old money system. Their business is highly regulated and they bet on currencies, stocks, bonds and commodities every day. Those are all regulated and traded for their massive portfolios.

Can you game any of those markets? Of course. Lot at the massive swindle of betting for and against mortgage securities during the credit bubble of 2006-2009.

That's all the more reason you should be wary of any virtual currency. If you don't think it can be manipulated, you're not paying attention to history.

-- The sky's the limit on price. Bitcoin hit $4,000, then receded after Chinese officials said they were going to shut down some Bitcoin offerings (along with Dimon's comments).

But it's not hard to find pundits who have declared Bitcoin could rise to $5,000, even $25,000.

Do the people making price predictions have a financial interest in seeing Bitcoin climb in value? Absolutely, but whenever anyone says a price could rise infinitely higher, I worry about a bubble. It's happened frequently in the past.

-- The Valuation Dilemma. How do you value something? With stocks, you can look at past and future earnings, dividends and sales. With currencies, it's what they are worth relative to other currencies. With bonds, it's the ability of an issuer to pay back investors.

What about cryptocurrencies? What is the benchmark to value them? They have no earnings. There is no regulated exchange gathering market bids on daily valuation. There are no price/earnings ratios.

That doesn't mean that linked computers and users across the world can't create their own market. But no legitimate market works without price discovery and transparency.

As thestreet.com noted in a commentary:

"Outside of some limited use as a means to buy goods and services, Bitcoin's $61 billion market cap is linked to the perception of value.

That is, Bitcoin is bid up out of a belief that others think it's worth something, too, or will do so in the future, even if (unlike traditional currencies) there isn't much demand for using it to buy things."

-- Bitcoin is the next world currency. I couldn't agree more than we need some form of universal currency. Maybe Bitcoin is that vehicle, maybe not.

John Maynard Keynes, the great economist, advocated for a world currency back in the 1940s.

But in order to get banks and governments out of the currency business, there has to be global agreement on the rules of how that currency is valued and traded. Bitcoin has a long ways to go on that accord.

https://www.forbes.com/sites/johnwasik/2017/09/22/4-reasons-why-bitcoin-may-still-blow-up/#53367191c23a

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[cr1776]

This guy needs an editor and The Wealth of Nations  

I’d ask him: How do you value internet domain names? Real undeveloped property?

[Carlton Banks]

But in order to get banks and governments out of the currency business, there has to be global agreement on the rules of how that currency is valued and traded. Bitcoin has a long ways to go on that accord.

This guy also needs an economics lesson, straight from the first page of the most basic of basics.


When there are individual agreements as to the value of an asset/commodity, or when individual trading partners set their own terms of trade, economists call it "capitalism".

When there is a small group of individuals that decide all terms of trade or the value of assets/commodities traded for everyone else, economists call it "communism".

[buwaytress]

He also needs a better assistant able to come up with easily Googleable numbers and data. If he thinks fraud is Bitcoin's harshest criticism, he makes himself look incredibly foolish when he admits he doesn't have proof of this.

He also likely means illegal activity rather than fraud.

[aso118]

The author says fraud is rampant and that crypto markets can be easily manipulated. Any asset class which the big banks have touched is also manipulated. Even Libor, which involved only Banks, was manipulated. So it is foolish to single out Bitcoin.

[darkangel11]

This guy needs an editor and The Wealth of Nations  

I’d ask him: How do you value internet domain names? Real undeveloped property?

Wait, there's more. What about accounts on different platforms that are worth millions, like personal accounts of celebrities, youtubers and so on. They aren't officially priced, yet people are willing to pay huge money for them.
This is exactly how people of the paper money era are thinking. If something has no issuer and is unregulated it's probably worthless, like that drawing by an unknown artist... until that artist is praised by the critics and suddenly his drawing is worth a million dollars.

[hatshepsut93]

-- Fraud is Rampant. We have no way of telling what's going on since Bitcoin and its sister cryptocurrencies aren't on exchanges and are completely unregulated.

Bitcoin is a bit less anonymous than cash. Sure, new people might be easily scammed if they are not careful, but there's just as many if not more scams in fiat world.

-- The sky's the limit on price. Bitcoin hit $4,000, then receded after Chinese officials said they were going to shut down some Bitcoin offerings (along with Dimon's comments).

Bitcoin is not the same as stocks or other assets, it's unregulated, it's traded 24/7, it had near-zero starting price and it's a technology with giant potential. The fact that it is growing quickly still doesn't mean that it's a bubble.

-- The Valuation Dilemma. How do you value something? With stocks, you can look at past and future earnings, dividends and sales. With currencies, it's what they are worth relative to other currencies. With bonds, it's the ability of an issuer to pay back investors.

Bitcoin can have many sources of value, not only the value tied to its usability as a currency. It can has value as "digital gold", it can has value as the first global money of the Internet - the ability to send it to anywhere on the globe with no restrictions, and of course the value of decentralization - the guarantee that your money can never be seized by government or disappear due to a bank run.

[iamTom123]

The author says fraud is rampant and that crypto markets can be easily manipulated. Any asset class which the big banks have touched is also manipulated. Even Libor, which involved only Banks, was manipulated. So it is foolish to single out Bitcoin.

Unfortunately, many well-known personalities who are saying that Bitcoin can easily be manipulated are themselves also big manipulators in the markets they are playing with. This is akin to a black kettle accusing a black pan of being black. This is a big reality of the world we are in. Since Bitcoin is now exposing the hypocrisy of these people, they launched attack on it and began to call it by different names. Although I still read some of the comments of these kind of people just to see how fraud they can be, the market should stop reacting to them like they are the real prophets of tomorrow as these people are just nothing but representing the real fraudsters.