Is Bitcoin REALLY in a Bubble?

Many articles trying to address Bitcoin market as a bubble were recently circling around like flies and therefore I'm bit provoked to react to them because I don't find them accurate from a broader perspective. I will give you ten reasons why current Bitcoin state is (and will be for a long time) far from bubble.

1) Supply
Current amount of Bitcoin in circulation is 16 million coins. Compare it to gold. There is more than 171,300 tons of gold, it means 5.8 billion troy ounces / coins. Every year there is about 5 million additional troy ounces of gold. Bitcoin inflation is currently higher than gold inflation but amount of Bitcoins is only about 0.27%, resp. 0.37% of possible gold coins.

2) Demand
Demand for Bitcoins is increasing in time and as more people getting to know about Bitcoin and its advantages. On the other hand, everyone already knows about gold so its demand is more stable in general. Currently, there is estimated to be million(s) people buying/using/holding bitcoins and this number is growing every day. Potential target population is about 2 billion people so we are currently somewhere around 0.5 - 0.05% of adoption. This is far from possible bubble, it's rather marginal.

3) Parabolic trend
Parabolic price trend basically says there is lot of demand and market is bit super-heated. It's false to translate it as a bubble. If there is steep rise in price, there will probably come some correction sooner or later but it's no bubble indicator. It's rather strong demand indicator sometimes caused by "fear of being late" and sometimes caused certain short-term price strategy by larger investors. For long-term price, this is not really much important.

4) Price value
Price (2,809 USD at a time of writing) is (subjectively) too high, it must be a bubble, right? Well, not so fast. I'll not go much in detail here but I will re-direct you rather to my previous article focusing on Bitcoin price and its possibilities. Summary of the article is that that Bitcoin is right now (and will be for long time) super-cheap. You must understand it here, I'm not saying that price cannot go down below 2,000 or even shortly under 1,000 USD. I'm saying that after full adoption, price for 1 BTC should go beyond 1 million USD. If you imagine how you're cashing your 1 BTC for million USD, please hold on. When it happens and BTC reaches 1M USD, you'll not have to cash it back to fiat at all, don't worry.

5) Utility
There are sometimes arguments about poor bitcoin utility and all the value is practically created in exchanges. Well first, if there is no value (or intrinsic value if you wish), there would not be any fundamentals to drive price up for so long. Reality is that with using bitcoins you can save significant amount of money in many cases. Maybe I will write special article about it some other day.

6) Ecosystem health and growth
Bitcoin ecosystem is healthy and growing. There are many useful projects and (thanks to God) no toxic financial instruments so far although there are definitely some scam projects so be aware - but they don't have significant price impact. When we compare situation to the last real estate bubble where there were billions of USD in toxic financial derivatives based on sub-prime mortgages, we are far from that situation. On the other hand this cannot be said about fiat system. One more argument for holding Bitcoin.

7) Leverage level and derivatives
Leveraged investment in Bitcoin world is fortunately still relatively low which brings more price stability and prevents creating investment bubbles. Also AFAIK there is no toxic Bitcoin-based derivative market and hopefully it will stay like that for long time.

8) Secondary market
This is very important aspect. Many people don't understand that Bitcoin is not just a "common" crypto coin. Right now Bitcoin is more like reserve currency to the rest of the crypto market counting over 700 projects. This also partially prevents Bitcoin from going into bubble phase.

9) Youth
Trends are mostly dictated by young people. This is quite bad for gold and fiat money but it's very good for Bitcoin as most drive is done by young people as early adopters.

10) Exchanges and manipulation
We (fortunately) don't live in MtGox times anymore, when one single exchange was able to manipulate or even crash price of traded asset. There are currently hundreds of places where Bitcoin is traded and this makes price manipulation (and potential crash) much harder.

When to be afraid of Bitcoin bubble?

This will be quite strong statement but answer is: ALMOST NEVER! If adoption grows as it grows and there is no other systemic failure, it's practically safe to buy Bitcoin for any price up-to 1 million USD as it will probably go there sooner or later. If you're just a speculative holder, then of course entry price might be much more important for you.

Although Bitcoin looks like perfect investment so far and you might be in a hurry to put your money into it, hold on and please read the next paragraph first. Knowing there is no Bitcoin bubble doesn't mean there are no other risks and of course price always , more or less, fluctuates.

What are the other risks of Bitcoin investment then?

There are actually many risks and Bitcoin can crash (or significantly decline in value) quite anytime. I'll list some of them:

potential discovery of critical code vulnerability
bitcoin centralization
hostile governments and strict regulations (local risk)
major exchange crash/hack (short-time risk)
wallet device vulnerability together with hacks and viruses (personal risk)
complete failure of internet infrastructure (global risk)

If Bitcoin can crash, is it worth to use it at all then? It is. Advantages and benefits are far greater than potential risks and in some worst-case scenario we can always go back to gold or shells or even to fiat money in some most extreme case :).

Note: All given information is basically my view based on research and observation in this area since 2013. And don't forget, even though crypto (and Bitcoin included) might be very profitable for both individuals and humanity itself, it is only Jesus who is the real source of our hope, no technology can really do that.