It's clear, as the most nuts of a long run of nuts years comes to a close, the Bitcoin bubble aka 'dotcom bubble 2.0' is now grabbing mainstream attention, and after spending the last few months studying this gobsmacking phenomenon I feel obliged to share my thoughts, and dare I say, warnings.
The first point I want to emphasise: “Bitcoin” the ‘brand’, or whatever you want to call it, is just the first one, and the entire reason I feel compelled to write this is to emphasise this point, as it’s now getting out of hand, and if you, or anyone you know is tempted to jump on the bandwagon, it’s likely to be the first name you hear, and the space is populated by a lot of very excited (or ecstatically manic) idealistic people who have been into it for a while, and probably done very well out of it, to the extent that many of them seem to have lost all sense, and their eyes have glazed over with Bitcoin signs.
But there are several reasons that it’s likely too late for most people, and buying what is currently called “Bitcoin” or “BTC”, and a few alternatives that are also highly over-priced due to the irrational exuberance of the Bitcoin bubble, is in my opinion really not a good idea, for several reasons. Even Charlie Lee, the creator of ‘Litecoin’ (often called the silver to Bitcoin’s gold) has publicly said he thinks it’s gone too far.
Personally, I think the best way to view Bitcoin is like the ‘WWW/World Wide Web’ protocol that Tim Berners-Lee unleashed in 1989. That was like a new kind of language that enabled computers to talk to each other, so that people all over the world only needed a software browser like Netscape, Internet explorer, then Safari, Chrome, and so on, to read that language and present it to us in a way that means something to us, either as text, or images, video, sound, etc. Bitcoin is like Netscape. It’s the first model of a new layer on the internet, which is an internet of value.
Bitcoin is the first one, but what is happening is far bigger than Bitcoin itself, and it has already been vastly superseded by many superior alternatives, while the current incarnation is buckling under the pressure of the huge surge in interest, and it can’t cope with the number or transactions, and the fees are becoming absurdly high, ironically.
One of the features of Bitcoin is supposed to be that it is “decentralised”, which is usually taken to mean it cuts out the ‘middle man’, aka banks. But all that has really happened is centralisation has taken different forms, either in terms of funding for development (much of which comes from big finance anyway), or in terms of the cartels of miners needed to keep it going, a majority of them in big mining ‘farms’ in China, which probably also means under the closely monitored permission, if not direct involvement, of the Chinese government.
But even purely from an investment point of view, when a single Bitcoin is worth nearly $20,000 USD or $25,000 AUD, then in order to make any money from it, the amounts it needs to increase by get bigger the higher it goes. For anyone who doesn’t already own at least 1 Bitcoin, then the margins get smaller as the price goes higher.
More pressing in my opinion is the fact that the governments of the major economies haven’t yet established how they are going to deal with it. The growth in 2017 has been almost a model of exponential growth, and there is just no way they can ignore it any longer. They will most definitely have to act soon, and it may not be to everybody’s liking. That’s not even considering the more basic question of taxation, and how many people who have suddenly made large sums of money, many seemingly under the misapprehension that it’s completely anonymous, while often bragging about it on social media. So when that hammer comes down, there may well be a big shock awaiting for many.
But I don’t mean to sound too pessimistic, in actual fact I’m not especially disagreeing with the many out there saying “it’s going to a million dollars” or whatever, I’m actually just making the distinction that they are talking about “Bitcoin” as though that’s what it’s all about, when they are actually talking about a whole new ‘internet of value’ layer on top of the existing internet. And that’s not going to go to a million, but it’s more like a total overhaul of the existing financial system, and going to soak up trillions. Even “Blockchain” isn’t adequate any more to describe it. Or “Hyperledger” or “the Tangle”, or any of the multitude of others appearing. This is the whole point — Bitcoin was just the first one. It opened a pandora’s box, but it has already been left in the dust by its offspring.
So, in more practical terms, in case anyone who might have actually read this far and given a shit, I would personally highly recommend avoiding buying Bitcoin, and probably any of the others over $100 right at this moment. Probably even over $10. When the bubble bursts, they will probably all contract to more realistic levels. There are likely to be opportunities even bigger than the dotcom boom, and the best way to decide which will survive the bubble bursting and become the Googles and Amazons of the new economy is to do a bit of research into which ones are viewing it more solidly and long term like this, and not basing their entire business model on a kind of vague idea of destroying the world economy overnight because “fuck the banks”, but actually understand the very basic mundane reality that they will have to work with the existing system, and that it will still be as revolutionary as the internet has been, without needing to necessarily ruin too many lives in the process.
Personally I’m watching Ripple very closely. The crypto-heads kind of hate it because they see them as kind of collaborators working with ‘the enemy’, so that’s kept it a little shielded from some of the irrationally exuberant mania. I see them more as having their heads in the real world and having the best chance of actually succeeding.
There’s my 0.02 Ripples. Be safe y’all
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