Disclaimer: The information in this blog represents the opinions of its author and is for educational purposes only. It is not intended as investment advice. Cryptocurrency markets are extremely risky so you should only invest money you are willing to lose.
...Yawn... Another New High?
Bitcoin hit another new all-time high this morning, blasting through $13K. It's getting difficult to recall a day when bitcoin hasn't hit a new high, and the days of talking about bitcoin price in increments of hundreds are long gone.
Bubble-talkers and naysayers sound pretty confident that bitcoin is overpriced and about to pop any day now, but how do you put a fair value on an asset class that never existed before, whose use cases have yet to be imagined, and whose market capitalization is still only a minuscule fraction of other asset classes?
What's more, bitcoin futures are about to start trading on the oldest and biggest commodities exchange in the world, The Chicago Mercantile Exchange. When this happens, every currency trader on earth will be able to access bitcoin as easily as the Dollar, Euro, or Yen, bitcoin will instantly be connected to the global economy, and the $20 trillion-a-day liquidity of the futures markets will have an instant on-ramp to the cryptocurrency realm. This will change everything - giving cryptocurrencies access to a level of liquidity orders of magnitude greater than they have ever seen.
Bitcoin will become mainstream, officially legit. People will stop seeing cryptocurrencies as backwaters of the dark web, and start seeing the massive power of blockchain with its built-in scarcity, self-verifying ownership and secure transfer of value, and creative killer apps and use cases will start appearing daily, creating new economic ecosystems of their own.
Hundreds of hedge funds have been established in the past year just to trade cryptocurency.
Dying To Get a Piece Of The Action
Millions of Investors are still dying to get a piece of the action, waiting patiently on the sidelines to apportion even a small fraction of their portfolio to cryptocurrencies.
These are the people who just don't want to deal with the headaches - the tech, wallets, exchanges they've never heard of, waiting for bank clearance, unknown tax liabilities, etc... Now, suddenly, all those obstacles vanish and they have a legit onramp to the cryptocurrency space.
Unprecedented In Our Lifetimes
This is an event unprecedented in our lifetimes - a revolutionary new asset class suddenly connected to a $20 trillion-a-day market. It's like the fall of the Berlin Wall.
So the mathematical argument is overwhelming, but bubble-talk can just as easily be dismissed with rational scrutiny.
What defines a bubble? Psychology overpowering fundamentals in determining the fair value of an asset.
The problem with bubble-talk is that it's a non-sequitur at best, creating a false analogy between bitcoin and tulips or dot-com stocks. We know how to value stocks, and we know what tulips are for. We have no idea what killer apps, creative use cases and entire economic ecosystems cryptocurrencies could create.
The Problem With Bubble-Math
The analogy is even more spurious, because bubble-math only measures percentage gains against an asset's own price. So instead of comparing the price of an asset to where it came from, let's look at where it's headed. Although bitcoin's percentage gains may be comparable to the Dutch tulip bulb mania or the dot-com craze, its market cap is only a tiny fraction of dot-com stocks and even a smaller fraction of the global currency markets, in which it will become a player on Dec. 18th when bitcoin futures start trading at the Merc.