Bitcoin has soared 2100% in 2017, even as the network itself has only grown by 27%. The numbers do not add up and economics is all about numbers. Is it even possible to rationalize this market behavior as anything but a bubble?
As the price surged over 50% within 24 hours, there's a babel of dissenting voices against Bitcoin. Banks and financial institutions across the world are lobbying for a ban on the cryptocurrency. 90% of institutional investors are branding it a bubble. Even those who once batted for Bitcoin are now beginning to entertain such an opinion.
Biggest Bubble Of Our Lifetime
According to former Fortress hedge fund manager, Michael Novogratz, who is a self-confessed bitcoin bull, “I think this [crypto] is going to be the biggest bubble of our lifetimes by a long shot. To be fair, this is a bubble and there's a lot of fraud mixed in. We look at tons of projects. And some get funded, and they literally look like Ponzi's. There's a lot of froth and fraud in something that's exciting as this.”
Novogratz, who is fond of making bold bitcoin predictions, is not keen on making a prediction for when the bubble could burst.
Only Invest What You're Prepared To Lose
Owner of the NBA's Dallas Mavericks, Mark Cuban's ‘tip' for investing in Bitcoin is to only allocate 10% of your savings but pretend that it's already lost money to avoid shedding any tears in the future when the market crashes.
“It's OK to invest up to 10 percent of your savings in these high-risk investments, but you've got to pretend you've already lost your money. It's like throwing the Hail Mary.”
Bitcoin Is Monopoly Money
CNBC's market expert, Jim Cramer thinks Bitcoin is a pure gamble and electronic money is as valuable as monopoly money.
“It's kind of like Monopoly money. Obviously, there's people who use it. If you ever say anything bad about it, there's like this bitcoin mafia that comes after you. But it is an oddity that has nothing to do with us. It's just pure gambling at this point. I mean, if you want to gamble, go to Vegas. Vegas is fabulous.”
Tony Robbins, best-selling author of ‘Money : Master the Game', holds a similar view.
“I think [bitcoin] is very iffy. I don't have a clue. I look at that as it's like going to Vegas.”
Avoid It Like A Plague
Legendary investor and index fund revolutionary, Jack Bogle thinks Bitcoin should be avoided as a virulent plague and the more people it attracts the more devastating and widespread its economic impact.
He said in response to an audience question at an event, “Avoid bitcoin like the plague. Did I make myself clear? Bitcoin has no underlying rate of return. You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it.”
It's A Pyramid Scheme
It's impossible to do a Bitcoin opinion survey without coming across the worlds ‘ponzi' or ‘pyramid'. Value investor and co-chairman of Oaktree Capital, Howard Marks duly delivers the P word, adding that Bitcoin has no fundamental value.
“In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”
Could Bitcoin Become Worthless?
Former Federal Reserve Chairman Alan Greenspan, who is fascinated by Bitcoin, likens it to Continental currency from during the American Independence war era in 1775, which ultimately collapsed and turned out to be worthless by 1782. Greenspan is perhaps the most qualified market expert alive when it comes to identifying economic bubbles.
“Bitcoin is really a fascinating example of how human beings create, estimate and judge value and it's not always rational. You cannot tell me that you can create, out of nothing, something which has a medium of exchange value. It is not a rational currency in that sense.”
Greenspan added that even something which ultimately turns out to be worthless can create goods and services in the short term, “That does not mean it will not trade, because so long as people believe, they can sell it to somebody else or unload it on somebody else. That's all you need to create a market. Human beings buy all sorts of things that ultimately aren't worth anything but they do it anyway. People gamble in casinos when the odds are against them. It has never stopped anybody. Bitcoin is just as irrational.”
Bitcoin Bubble Opinion Conclusion
Throughout the vast expanse of time, throughout written history, human beings have been taught one lesson. Never bet against history because it is the greatest source of knowledge and when all is said and done, regardless of anybody's opinion, history proves itself to be right every single time.
Bitcoin is unquestionably in a bubble but when that bubble pops, its impact, although likely to hamper progress in the short to mid-term, cannot destroy blockchain technology as a whole. When the $3.7 trillion dot-com bubble burst, 99% of the market went bust but did it kill Internet? No.
Blockchain is just as irrepressible as the Internet. Blockchain is the crown jewel of the Internet and it will ultimately rise to prominence by means of a more rational, sustainable implementation.