Currently, every day another pundit from the financial world is making a remark about whether Bitcoin is in a bubble or not. Astonishing that this is still a debatable question.
Of course Bitcoin is in a bubble. What other reasonable (yes, reasonable, not just mambo jambo) explanation is there for the crazy explosion in the Bitcoin price? People should be honest with themselves: Bitcoin’s price keeps increasing because people expect the price to increase and would love a piece of the profit. It’s all speculation.
Sure, there might be the occasional individual in a country with a non-functioning financial system, who uses Bitcoin for non-speculative transactional purposes. But realistically, other cryptocurrencies are more suited for that, due to lower transaction fees and faster processing times.
Right now, Bitcoin is pure speculation, and it’s a bubble. Period.
With that being settled, the more important questions, in my eyes, are:
- How long will this go on and how many more people/institutions will jump on the Bitcoin train due to fear of missing out? The more, the bigger the bubble will grow, and the more extreme the inevitable crash will be.
- When we speak about “crash”, what do we mean? My definition: A massive and rapid loss not only in value but more importantly, in trust. If Bitcoin today loses 25 % of its value but regains the losses within a few days, that’s not crash. But if Bitcoin loses 25 % today, 30 % tomorrow, 25 % the day after, and makes a critical mass of people decide that they’ll stop speculating with the currency, then it’s a crash.
- How many of these crashes will be necessary to scare most of today’s Bitcoin speculators away, for good? Will this ever happen, considering that speculation is pretty addictive?
- Who will be those who end up losing significant amounts of money? Average Joes and Janes? Early Bitcoin adopters (technically unlikely)? Financial institutions? Wealthy late adopters?
- How much environmental harm will the growth of Bitcoin cause, considering its tremendous energy consumption? Due to the looming threat of climate change, the timing for the Bitcoin phenomenon is bad.
- Do terrorist or “oldschool” organized criminal organizations (I am not referring to dark net organizations, which essentially are “Bitcoin” natives) benefit from the Bitcoin bubble? If so, how?
- Which other unintended/unexpected consequences could arise if the Bitcoin bubble keeps expanding for several more years?
- If the collateral damage of Bitcoin for society and the planet might become too big, will governments of liberal, democratic countries eventually announce drastic measures to “ban” Bitcoin? They cannot ban the technology itself, but could outlaw exchange to fiat money. But would they even be able to, considering that a growing number of stakeholders would have a lot to lose, and therefore would oppose such a move?
Summing up, while I love the potential of blockchain technology and the idea of cryptocurrencies in general, I think right now, weighing benefits and risks, Bitcoin is on a destructive trajectory. And the most perfidious aspect of it is that as soon as one is invested in Bitcoin, arguing against it goes against one’s own (short term) financial interests. I own a fraction of a Bitcoin but due to its rise in valuation, that’s enough to make me experience the power greed has on my reasoning. But fortunately it’s not enough to blur my clear thinking completely. Therefore my hope is that Bitcoin will crash hard and ideally multiple times, as soon as possible. It would be better for everybody. At least in the long term.
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