The Bitcoin Bubble

Hypothetical Price Chart

The only reason anyone is giving for buying Bitcoin is to make money, it’s speculation only. That’s how you know it’s in a bubble. Bubbles do two things, they inflate and they burst. Typically, professional traders will all sell together, causing the burst, and retail traders will be left holding the losses. Bitcoin evangelists will tell us there is another good reason to buy, Bitcoin is the future of money. So how is it different from normal assets?

Make a comparison with gold, there is a persistent fear that central banks will dump their holdings, collapsing the price. Or, a new gold field opens up and if it’s big enough, it collapses the price. That can’t happen to Bitcoin, according to the evangelists. There are 21 million Bitcoins and that number can not change. For that simple reason, the value of Bitcoin will keep going up, according to the evangelists. Demand is increasing but supply is fixed.

That still leaves the central bank dumping question. ‘Central banks don’t hold Bitcoin’, again the evangelists have the answer. What if we substitute ‘Central Bank’ with ‘Someone having Massive Bitcoin holding’? That person could dump their coins and collapse the market. Does such a person exist? Yes. Not one individual, but a small group of people. This group bought lots and lots of Bitcoin years ago, when it was cheap. Now these people are sitting on massive profits, which they will realise when they sell their coins. They know who they are, they talk to each other because they want to know before the others sell out and collapse the market.

Who is this cartel? It doesn’t matter according to the old poker maxim ‘if you don’t know who the patsy is in the game, it’s you’. Ok, the cartel is The Evangelists, the ones giving all the reasons why Bitcoin is the future of money. They have launched a Futures contract on CBOE, they are preparing ETFs next. All to make it easier for you to get into Bitcoin and inflate the price. They are stoking demand for a finite asset which they hold a big chunk of.

While it’s true no new Bitcoin mines can be found, there are other cryptocurrencies. Ethereum is quite well known. Dash, Litecoin, Peercoin, Quarkcoin, Stablecoin are among many more. The Japanese government is planning a cryptocurrency for use in the 2020 Olympic village. Ripple XRP is based on a transactional network infrastructure which already has the buy-in of some major banks. Some say that if cryptocurrencies are sustainable, governments will issue their own, collapsing the private ones like Bitcoin. When will this happen? At the latest I propose the Summer of 2020, around the time we get a new 100 metres champion.