Greater fool theory: The bitcoin bubble

[wxa7115]

People are buying Bitcoin because they expect other people to buy it from them at a higher price; the definition of the greater fool theory.

If everyone tried to realise their Bitcoin wealth for millions, the market would dry up and the price would crash; that is what happened with the Mississippi and the contemporaneous South Sea bubbles. And because investors know that could happen, there is every incentive to sell first. When the crash comes, and it cannot be too far away, it will be dramatic.

https://www.economist.com/blogs/buttonwood/2017/11/greater-fool-theory-0

So? We know the price is going to go down at some point and then go up again that is the way things work, the most important aspect of bitcoin is if it is able to perform its function as a currency and bitcoin can do that so at some point the price of bitcoin is going to recover not because we are expecting a bigger fool but for the development and the adoption of bitcoin.

[Seansky]

I dont buy bitcoins, i only earn them, and everytime that i have some bitcoins i always sell them.. It is not because i dont trust, it is because i prefer to hold that money on fiat (usd) because it is much more safer than bitcoin.

That is the same as not trusting bitcoin. You said that holding it in fiat is safer than bitcoin, but that act and kind of thinking itself shows the little trust you have on btc. Instead of a currency, you only see it as a way to get extra fiat online.

If everyone tried to realise their Bitcoin wealth for millions, the market would dry up and the price would crash; that is what happened with the Mississippi and the contemporaneous South Sea bubbles. And because investors know that could happen, there is every incentive to sell first. When the crash comes, and it cannot be too far away, it will be dramatic.

Bitcoin price would dump if everyone sells it but it ain't the end. Instead of comparing bitcoin to what happened with the Mississippi and the contemporaneous South Sea bubbles, you should compare it instead on other cryptocurrencies who are created only for the sake of gaining money.

[amaral1977]

The easiest way to look at something new and most of all something that have been at the later years the biggest finantial asset missed by "the experts" is throw the greater fool theory to the wall, see if it sticks and then come and say: "i told you so". The same guys that advocat for madof fund, or greek debt when the country was already on the verge of bankruptcy or buying stuff before the subprime crisis stating BTC is a greater fool theory asset for me is a BIG buy signal!

[swaptaker]

Let us save some time that the greater fool theory will only apply to people who just buy Bitcoin without even a strategy. I am not against buying Bitcoin at a higher price but there is always a right time to buy it, if the high price is justified by the price chart then you will know that buying Bitcoin now is good. But if the price chart is not clear then you better just sit the price action down until it settles.

So what? I couldn't understand your point. I mean do you think this is something wrong to buy bitcoins? Or is it wrong to get bitcoin with the idea of getting it in a cheaper rate than other people?

Very interesting theories, I'll get more details about greater fool theory. I've heard this for the first time for bitcoin. Anyway, it's not bad to buy bitcoins nowadays because we're afraid of possible pumps in price.

[Agostosmori]

People are buying Bitcoin because they expect other people to buy it from them at a higher price; the definition of the greater fool theory.

If everyone tried to realise their Bitcoin wealth for millions, the market would dry up and the price would crash; that is what happened with the Mississippi and the contemporaneous South Sea bubbles. And because investors know that could happen, there is every incentive to sell first. When the crash comes, and it cannot be too far away, it will be dramatic.

https://www.economist.com/blogs/buttonwood/2017/11/greater-fool-theory-0

surely BTC have attracted many individual to save it in hopes of getting a profit after a period of time (thus further limiting the circulating BTC). but i think as long as BTC can be use as a commodity to buy different goods and services. it is only understandable that BTC value will steadily increase because of its nature limited supply and increasing use for it. and as long as people trust the technology and use it for its purpose. i think BTC will stay for what it is intended for a very long time.

[megynacuna]

I dont buy bitcoins, i only earn them, and everytime that i have some bitcoins i always sell them.. It is not because i dont trust, it is because i prefer to hold that money on fiat (usd) because it is much more safer than bitcoin.

That is the same as not trusting bitcoin. You said that holding it in fiat is safer than bitcoin, but that act and kind of thinking itself shows the little trust you have on btc. Instead of a currency, you only see it as a way to get extra fiat online.

If everyone tried to realise their Bitcoin wealth for millions, the market would dry up and the price would crash; that is what happened with the Mississippi and the contemporaneous South Sea bubbles. And because investors know that could happen, there is every incentive to sell first. When the crash comes, and it cannot be too far away, it will be dramatic.

Bitcoin price would dump if everyone sells it but it ain't the end. Instead of comparing bitcoin to what happened with the Mississippi and the contemporaneous South Sea bubbles, you should compare it instead on other cryptocurrencies who are created only for the sake of gaining money.

That is correct, even though there could be a dump there could also be a mass adoption afterwards and so people should hold on nomatter the dump for others  to buy back and  bitcoin will always be on its feet despite what others might do to sabotage its operations.

[Razick]

Seems like this sort of thing is what happens just before a bubble bursts. People trying to get in thinking it is going up and they will only be disappointed when it crashes hard soon after. Any one with a decent working brain who sees the BTC price chart will see we are in a serious bubble that is bound to burst anytime.

[jaysabi]

I am not convinced that buying something with the intention to sell at a higher price is greater fool theory, perhaps buying something with no idea what is a good entry and exit point could fall under that category. If you buy rice in China and know you can sell it in the UK for a profit, that is not greater fool theory, that is good sound logic.

Everyone who buys an asset does so with the intention of it being more valuable in the future; the intention has no impact on whether or not it's a sound decision. In your analogy, you present it as a given that rice can be bought in China and sold profitably in the UK, but in the real world, anywhere there is a known profit margin, there is intense competition that eliminates it except for the biggest, best run operators. There is no such thing as gauranteed profit in the real world.

The point is that nobody buying bitcoin at $7000 has a reasonable expectation what the price should be or whether they should expect to be able to sell it at a profit later. Of course everyone intends for it to be worth more later, but the blind assumption that you will be able to flip it to someone who will value it more in the future than what you do now is what proves the basis of the greater fool theory. Everyone buying right now is only doing so because everyone is sharing the same delusion that the price can't go down, or if it does go down, it'll recover quickly. The base assumption is "as long as I don't sell for less than what I bought for, I'll make a profit." Nothing in the world works that way, and the scary part is people are treating bitcoin like it's a risk-less asset.

[thecodebear]

I am not convinced that buying something with the intention to sell at a higher price is greater fool theory, perhaps buying something with no idea what is a good entry and exit point could fall under that category. If you buy rice in China and know you can sell it in the UK for a profit, that is not greater fool theory, that is good sound logic.

Everyone who buys an asset does so with the intention of it being more valuable in the future; the intention has no impact on whether or not it's a sound decision. In your analogy, you present it as a given that rice can be bought in China and sold profitably in the UK, but in the real world, anywhere there is a known profit margin, there is intense competition that eliminates it except for the biggest, best run operators. There is no such thing as gauranteed profit in the real world.

The point is that nobody buying bitcoin at $7000 has a reasonable expectation what the price should be or whether they should expect to be able to sell it at a profit later. Of course everyone intends for it to be worth more later, but the blind assumption that you will be able to flip it to someone who will value it more in the future than what you do now is what proves the basis of the greater fool theory. Everyone buying right now is only doing so because everyone is sharing the same delusion that the price can't go down, or if it does go down, it'll recover quickly. The base assumption is "as long as I don't sell for less than what I bought for, I'll make a profit." Nothing in the world works that way, and the scary part is people are treating bitcoin like it's a risk-less asset.

And you just described every stock, every investment ever. So whats the big deal? Its no different than putting your money in any other investment, you do it to sell it at a higher price later. Only difference is if you buy now you're getting in when Bitcoin is still tiny and has a long way to mature. Unlike getting in on a company's stock that is already mature. Sure the risk is maybe Bitcoin doesn't succeed as a payment platform, but we probably won't know that for a few years and in the meantime it looks very unlikely to do anything but go up.

[The Sceptical Chymist]

People are buying Bitcoin because they expect other people to buy it from them at a higher price; the definition of the greater fool theory.

While I don't necessarily disagree with this, the same could be said of any stock that doesn't pay a dividend, like Facebook and the like.  People own it in hopes of getting capital gains (and no income) and selling it off to another person at a higher price.  That is the "greater fool theory", which has been serving capitalism well for as long as capitalism has been around.  Nothing wrong with that in my mind, just that bitcoin's a different asset.

If everyone tried to realise their Bitcoin wealth for millions, the market would dry up and the price would crash

If my grandmother had wheels, she'd be a bicycle.

[Hexah]

There are many who said that one even on the young years of Bitcoin in the blockchain world but right now those who just brag and never this coins feel lost because they don't know that it could rise up to this price right now. Those people who says right now that Bitcoin is a bubble again, then history will just repeat and they will miss the opportunity ahead of supporting bitcoin. Well, we can't control how they think about bitcoin but I know that if negativity will always be then negative realization will arises too. Hope these people would realize how great this crypto is and a bubble thing is not its character.

[ralle14]

Let them say what they want about bitcoin. These guys don't know how much money they're missing out on. A crash can be expected with bitcoin's price but I don't see it going down heavily like the south sea bubble. Bitcoin has more uses than being a stock.  Other people said previously that bitcoin is crashing soon but look where bitcoin is at now.