It seems like financial analysts, and reporters have gotten pretty comfortable rewriting the same articles about the Bitcoin bubbles inevitable burst. To be honest from their standpoint cynicism makes sense, Bitcoin is new and confusing; embedded into the most esoteric reaches of programming and the web, how could it be anything but a bubble? After all, if there’s one those four years in a state university taught them its how to tell when two graphs look the same, and it’s undeniable that this notoriously spammable general market bubble graph and the one-day interval graph look awfully similar.
In the end, calling Bitcoin a bubble is the safe bet. In most cases new promising technologies few people understand often are bubbles, statistically speaking you’d be more likely to be right just randomly calling everything a bubble, and as a financial analyst being right counts. Even if your predictions were made with a complete lack of analysis and out of total ignorance.
And Any Market That Acts Like Bitcoin Just Ends Up a Bubble. Right?
Well, I’ve got a test for all of you financial analyst and speculators, those of you with a particularly violent “bubble” phobia may want to opt out, and just skip to the answers. Below are some stock charts for a few bubbling companies, which ones do you think popped, and which eventually just leveled off.
Look at these closely, and compare them against the Bitcoin pricing chart, and the general market bubble chart, compare similarities and differences and based just on that information, the same information analysts have determined Bitcoin is a bubble from, write down which of these three you think are bubbles. The answer is none of them;
Do you feel stupid yet? You should, based on the same information most “experts” are using right now to call Bitcoin a bubble three of the largest technology companies of our time were just bubbles, bound to pop. For your average investor, this mistake is forgivable and actually expected. For an expert, this is blatant laziness if not full on trolling.
The Problem is…
Technology cannot be valued using traditional metrics, otherwise, it all looks like tulips. In the past, the value of a market was determined by simply summing the value of the assets with the total value of the goods that can be produced and subtracting the costs of operation. Any valuation above the price calculated was just considered speculative pricing. But what assets do companies like Google, Facebook, and Instagram really have? The truth is very little, they don’t actually produce anything, they require very little equipment and property to operate by traditional metrics there worthless.
The truth isn’t so simple when we value technologies we have taken into consideration the value of the actual idea. Which for obvious reasons isn’t easy, but general market sentiment is a fairly good indicator, and the sentiment as of now is Bitcoin isn’t going anywhere. Its a truly novel invention, and is hardly a newborn in the life cycle of economics.