Bitcoin & The Giant Bubble(s)
Bitcoin is an asymmetric opportunity. The profit opportunity is many magnitudes greater than the risk.
A previous post from April 2019, but still holds true.
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“The vast majority of human beings dislike and even actually dread all notions with which they are not familiar... Hence it comes about that at their first appearance innovations have generally been persecuted, and always derided as foolish and mad.” ― Aldous Huxley
The goal of this post is to combat the most common narrative people outside of crypto have heard over the years, "the bubble has popped and Bitcoin is dead!" I've been hearing this for almost 7 years, I assume I'll hear it for the next seven as well. This is a perspective from someone who has been through the two most extended and deepest bubbles in crypto and came out the other side, on top.
For nearly a decade famous economist, bankers, and investors have decried, "Bitcoin is dead, a tulip bubble that has popped...."
Indeed, someone even charted it.
Here are the accepted phases of an investment bubble.
Here is a comparative chart someone did in 2013 on the Bitcoin price, after it went from $200-1200, then back to $400 in 3 months.
"Bitcoin is a bubble," they said. Except, they had to say/chart the same thing four years later when prices peaked at a new high near $20,000.
That was an opportunity for a 5,000% return within five years!
Everyone wants to know, what’s the key to beating the market consistently? You don’t have to beat it consistently if you beat it a few times at 10x or 50x. Most active investors strive for 10-20% returns trying to outpace the stock market.
Bitcoin simultaneously is/was a bubble. We'll get to the why's in a moment. First, a linear chart of a major Bitcoin bubble Jun 2011—Nov 2011: -93.8% (popped at $32 to $1.99).
Next Bubble, Apr 2013—Jul 2013: -76% (popped at $266 to $63).
The following bubble (that same year) Nov 2013—Jan 2015: -85% (popped at $1,166 to $170.
Did you happen to notice the former "bubbles"? Small blips on the charts, expressed better here on the current "bubble" we're currently recovering from, Dec 2017—Today: -80% (popped at $19,783 to $3,300).
All bubbles combined
Finally, we have the ever so powerful logarithmic chart. Log charting is recommended when something exponentially increases/decreases over a short time. Compared to the chart directly above, not only are the past bubbles present, you also get a better visual representation of the overall price strength.
As for our renowned economist, he has been railing against Bitcoin since it was $50. A broken clock is right twice a day. Think of the returns missed, all while being empirically wrong.
Why Does Bitcoin Keep Rising From The Ashes?
A bubble popping does not mean that asset(s) is dead or valueless, especially when it‘s a useful technology. One comparison I partly agree with is the Dot-Com crash. Bubble popped, but Amazon, Google, and others did not wither away. They were useful and fundamentally valuable, even if investors didn't understand their value proposition in 2000. Why the highest investment returns come from believing in ideas before others understand them.
Bitcoin is useful, open, and scarce. Can you send tulips, gold or anything of value to anyone around the world in minutes? (Why is bitcoin valuable? Click here) Was the South Sea bubble a fundamental breakthrough in computer science allowing us to have unforgeable/uncopyable digital assets to freely trade, and without the blessing of a middle man? I think not. Bitcoin is a monumental invention in our increasingly digital lives.
The Bitcoin bubble keeps re-inflating and won't die. Why?
Bitcoin is useful, open, and scarce. How many people had access to the tulip mania? Access to the Dot-Com crash? Not many, only fortunate 1st world investors got to inflate those bubbles. Bitcoins can be transacted or stored by anyone with an internet connected device. There are fewer barriers to buy bitcoin than there is to open a bank account in many parts of the world.
Every time Bitcoin is in the news defying death once again, a new crop of people get interested and add fuel to the fire, re-inflating a new bubble (the mania phase). After the exuberance, the bubble inevitably pops again. But, many of these people will come to understand the uniqueness and value in Bitcoin, becoming hodlers, and creating a floor from which the price can settle and rise from once again.
Another benefit to open is that Bitcoin (public blockchains) is open source software, anyone anywhere in the world can contribute their ideas and code (features/upgrades) to build or develop the things they desire. This alone continues to bring new waves of innovations to blockchain world (stablecoins, privacy features, staking). The corporate walled gardens in the tech/financial arena cannot compete with this. You need permission to develop on these famous platforms. No permission needed in crypto.
Bitcoin is useful, open, and scarce. As more people pile in, due to there only being so many coins, they ignite FOMO, exponentially increasing the price. (Did you know, there are not enough bitcoins in the world for every millionaire to have just one.)
Importantly, high on the scarce side is the fact that most countries mismanage their money/currency resulting in a loss of people's wealth. Being able to move your wealth out of your inflated local currency privately is an enormous use case, as well as a benefit to a free and open society.
We think being useful, open, and scarce is a very disruptive combination, and deadly to financial middlemen and gatekeepers. This tech is dangerous to any middleman, because it cuts them out. Why should that surprise us? The internet removed entire industries of intermediaries.
I concede, crypto today is just speculation. However, speculation has always laid the foundation for innovation. I once read the paradox of innovation is that it's accepted as an innovation when it has become imitation. There are now over 2,000 cryptocurrencies, and brilliant people all over the globe are working on decentralizing the world's data, money, and power. Bitcoin is the internet’s native currency, its sovereign platform.
At Chain Haven, we understand crypto and Bitcoin are currently experiments, technologies that will need to be updated, upgraded and secured.
What many will soon come to understand is that the genie is out of the bottle, similar to the internet. Which, in the 90’s, was derided as something no one used, except for criminals, scammers and for porn. Those exact same (false) narratives are being hurled at Bitcoin today. (There is a sound argument to be made that if scammers and criminals are not using your innovation, you don't have anything of value, considering they are usually the first adopters of new technologies.)
In closing, if crypto fulfills even 1/10th of its use cases the value will be hundreds of times higher than it is today. What asset will have the opportunity of 10-100x return over the coming decade?
Therefore... Bitcoin is an asymmetric opportunity and NOT owning some is arguably a much more significant risk than owning it.
Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the assets discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained within. Past performance is not indicative of future results. Never invest more than you can afford to lose.