Is Bitcoin A Bubble?

Conor Maloney

May 10, 2018

Bubble? What Bubble

You know what’s so great about cryptocurrency? It’s the early days. We’re at the forefront of innovation, just like the tech boom in 1995! Of course, the thing that’s not so great about cryptocurrency is that it’s just like the tech boom in 1995.

You know what happened right after the tech boom peaked between 1997-2000?

The bubble burst.

Catastrophic market failures, companies shutting down left, right and centre – it was a real disaster. Does anyone remember pets.com? No? Well, that’s because it shut down in 2000 after running itself into the ground through overspending, but not before blowing $300 million worth of capital funding spent desperately trying to save it.

$300 million was more like $450m in today’s inflation, and for a website selling pet food online, that is a LOT. But that’s just how it was in those days. Rapid, unsustainable growth. The internet was new and exciting, the possibilities seemed endless, and people were trying out all sorts of crazy plans and pumping huge, huge amounts of funding into doomed projects.

The thing is, even during the famous bursting of the bubble, the money was still coming in. While the bubble burst became synonymous with Pets.com, mostly because of the adorable/annoying sock puppet dog that was the company mascot, the biggest failure in the dotcom boom/bust was actually Webvan.

Like Pets.com, the company was initially successful, but expanded too quickly (or tried to, at least). It was a grocery delivery service that grew to a value of $1.2 billion in just two years, and then announced a billion dollar investment in warehousing that would allow a 26 city expansion. After raising $375 million in a 1999 IPO, the company went under – by 2001 they closed their doors, laying off 2000 people.The shares dropped from a $30 peak to just $0.06 per share.

OH THE HUMANITY!

That’s how pretty much every dotcom bust went down. In the crash, websites lost a total of $1.75 trillion in value – really puts our January dip into perspective, doesn’t it? The thing is, the money wasn’t just coming in through IPOs. Venture capitalists were funding companies throughout the burst, betting that something was going to work. Some did, most didn’t – c’est la vie.

ICOs are becoming more of a rarity these days, after the huge surge of them late last year. The dip probably put a daper on things and scared off a lot of potential investors, but not all of them. Private sales are a huge thing – in fact, the biggest private sale of any cryptocurrency project ever just took place.

The Telegram private sale was reportedly such a smash hit that they cancelled the ICO. Raising over a billion dollars before you even open your doors to the public will do that. Now, some have suggested that they may not have rasied their target of $1.2 billion, and simply cancelled the ICO due to regulatory issues – it’s not yet known.

However, given that $2 billion out of the $6 billion raised last year in ICOs was raised by private investors, it’s a distinct possibility. The similarities between the crypto space today and the internet during the boom/bust/bubble are striking. Worryingly so. It all raises the question…

Is Bitcoin in a Bubble?

It’s possible. Of course it is – but then, Bitcoin and the other altcoins are surprisingly resilient to bubbles, aren’t they? Here’s what the tech bubble looked like, completely crashing the NASDAQ in 2001.

Now here’s the last few years of the crypto market in graph form.

Peaks and troughs, to be sure. Bitcoin has been declared officially dead for good 288 times and counting, a statistic recorded on Bitcoin Obituaries, a site dedicated to grieving over the many “deaths” of Bitcoin. It’s lost half its value more times than most people care to count. In 2011, Bitcoin actually lost 68% of its value, dropping from $32 to just $2… and yet here we are.

No doubt, things have been frenzied. The creation of the Ethereum platform massively disrupted the ICO industry and allowed just about anyone to invest in anything they liked, cutting out venture capitalists and accredited investors. An estimated 80% of ICOs are frauduent, and crypto investors have lost $150 million to phishing scams in the last four months – things are pretty wild.

The difference is, people are starting to see the value of what’s going on here. For every nine bullshit ICOs, there’s something groundbreaking that makes sense. Feeless payment systems, coins that fuel blockchain systems that can eliminate voter fraud and track frozen foood supplies – the use cases are coming out of the woodwork. Cryptocurrencies and blockchain technology is actually valuable.

To that point, I’ve recently heard it boldly suggested that Bitcoin wasn’t in a bubble, but an S-Curve.

The S-curve is the classic adoption curve applied to the advent of new technologies. As a percentage of the population, adoption looks like a lag phase where the technology is utilized by the innovators of said technology, followed by an early adoption phase led by people who often take risks in order to be the first movers in a space. After the early adopter phase (~16% of the population is now participating), there comes a great “tipping point” where the wide use of the technology seems inevitable.

The idea here is that Bitcoin plateaus, the “floor” catches up, it dips to the new lowest standard, and then off it goes again. The theory is that Bitcoin is just getting started, and it makes a lot of sense. Global adoption is just starting to really kick off – the New York Stock Exchange will be opening Bitcoin trading soon, Coinbase user demand is going through the roof, and Bitcoin is increasingly being featured in the news, television shows, and on buildings in the god damn street, goddamnit.

Japan Bitcoin Ad

I’d love to hear what you think in the comments.

Is Bitcoin on the brink of total annihilation (you know what they say, the 289th time is the charm!)?

Is it going to level off and stay put?

Is it going to blast us all into the dark, comforting void of space?

Let me know what you think, and… well… place your bets, I guess!

Crypto is coming.

Interested in other cool crypto posts….check out Mining Wars: Bitmain vs Dragonmint and The Price of Bitcoin vs Cost of Mining.

Follow us on twitter @cryptoiscomin

One thought on “Is Bitcoin A Bubble?

  1. Personally I think this is just the beginning. Bitcoin is antifragile. It takes a licking and keeps on ticking. Nothing tickles me more than seeing the old time investors like Berkshire Hatahway and B. Gates decrying crypto as a murderous villain. Bullish. 100k here we come.

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