There is No Crypto Bubble
Or maybe there is. So what.
Many new technologies go through a bubble period when first introduced. Part of the reason we get these bubbles is due to Amara’s Law:
We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.
It’s human nature to get overexcited over new technologies, and when this happens the price of anything connected to that technology gets driven up far more than is reasonable. This can continue for quite some time. The internet bubble lasted some 6 odd years.
Right now it seems like the cryptocurrency space is exploding. Many new coins have seen gains in excess of 1,000% in the past 6 weeks, as new institutional money has been entering the space and driving prices higher. The possibilities created by blockchaon, decentralization and cryptocurrencies is creating a whole new way for entrepreneurial start-ups to take on the entrenched market leaders. And it looks as if the new blockchain based projects will win in many cases, at least the ones that are nimble and fast enough to release a working platform before early investors move on to the next great thing. And make no mistake, those projects that survive and thrive are likely to be the big names of business in the next few decades.
Still, many traditional finance and economics leaders continue to warn against blockchain technology, calling the cryptocurrency explosion a bubble that is sure to pop and lead to ruin for many. Let’s have a look at some charts to dispel this flawed thinking.
That is a chart of Amazon’s stock price from its IPO in May 1997 to the high of $110.63 at the peak of the internet bubble in April 1999. In less than two years time the price of Amazon shares shot up by more than 7,000%, even though the company had no earnings and was burning through cash at an unsustainable rate. Does that look like a bubble to you?
The chart above shows the double top and implosion of Amazon stock from May 1997 through September 2001. From the highest top above $110 a share the stock collapsed and hit a low beneath $6 a share in September 2001. Does that look like a bubble bursting?
That chart above is the complete chart for Amazon up until today. The circled area is the “bubble” from 1997-2001. As you can see it is merely a blip when you can see what eventually became of Amazon shares. Zooming out like this gives us perspective. If you had purchased Amazon shares at the IPO and held them until now you would have realized a 27,500% gain, for a 39% annualized return.
As you can now see, a bubble isn’t always a bubble, or even if it is it doesn’t mean that given enough time an asset will appreciate beyond any bubble levels encountered early in the life of that asset.
20 years from now in 2038 we’ll be able to look back at the current volatility and price swings of cryptocurrencies and see that they were simply blips in what crypto eventually became. By that time various industries will likely be dominated by companies that are just beginning now on the blockchain, or companies that haven’t even been dreamed up yet. Best of all, we’ll all be benefitting from the new decentralized nature of business, finance, and the world in general. There is no crypto bubble, only a crypto future.
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Interesting and accurate perspective. HODL is the key word of the day, month, year! Here's hoping 2018 will be another good year for crypto.
I'm 99.9% certain 2018 will be a good year for crypto.
I'm pretty optimistic for 2018 on the development of blockchain technology. Especially for the ethereum network to solve the scaling problem.
Yes well STEEM network has already solved the scaling problem. At least it seems that way.
@moneyinfant Yes, look at amazon and the Internet now! Huge progress and success. Crypto is the way to go!
It is so early in the crypto cycle that it's impossible to say what might be in 20 years time, or even 10 years for that matter.
Very nice perspective, it may me think about leaving at least 1 BTC or ETH before I cash everything out to see how it will do over the years.
I would definitely recommend holding 1 BTC and 1 ETH for the long-term. BTC might not go to $1 million as some predict, but it might too. And I believe ETH is actually the better coin.
We probably are far way for the bubble right now. The price isn't growing like was before, the market is correcting itself until something happing to improve the network and lower fees, like lightnetwork.
That's true for Bitcoin, but it's consolidation more than correction. The rest of the crypto market is (mostly) on fire these past 6 weeks.
I think the market is definitely correcting itself. The market as a whole seems to be growing though which is a good sign. I think everything would be completely tanking if it was a bubble. Good post !
There's not much that's tanking. There's rotation from one coin to another, and Bitcoin suffers as it is the counter-party to most pairs. If there's a bubble building it will be some time before it bursts - total market cap hasn't even reached $1 trillion yet.
Agreed. Currently we have about .05 of the worlds currency in crypto. I think when it reaches about 5%, then the bubble will be more susceptive. Exciting time we live in, interested to see what the future of crypto bring to this world.
I think the crypto market as a whole has a lot of growth potential.
But, some projects are way too overpriced.
DYOR as they say as it does pay off!
There's no doubt some projects are way overvalued currently. Once the markets become more established I think we could see a good number of these projects fading into oblivion, but the best will rise to the top and see even greater price appreciation.
I believe 2018 will be the year we see that.
Thanks for the reassurance.
I think you are right... Cryptocurrency is the future.. But before that happen, they need to cross many hurdles..... There will many ups and down... Many people will lose money and many will gain..
Yes @zanky you're quite likely correct. It will continue to be a wild ride for some time to come.
Nice article. You summarized my philosophy on it in the first line: So what?
Yes, that does pretty much sum it up. I guess I could have made the first line tl;dr Or maybe there is. So what.