Note that this article has been updated to also include some of the private discussions with thought leaders in the past. You can read my final overview of my research into the Millennial generation along with what I predicted and what happened as they matured at this link. While I still speak about Echo Boomers and iGenZ privately, I seldom add new articles to this specific blogspot site. If you're reaching out about a speaking engagement, you can contact me at the research firm SqlinSix.
Bitcoin is tulip mania 2.0 - not gold 2.0, says @PeterSchiff: http://t.co/LbdSaQB5k4
— Jesse Colombo (@TheBubbleBubble) November 13, 2013
I write this post with the assumption that you know a thing or two about bitcoins. If you don't, stop reading.
A few months ago (see the below chart), people declared that the bitcoin bubble had popped because it had reached around $260 a bitcoin and then fell to less than $100 a bitcoin. Except, as of this writing, bitcoin's price exceeds that supposed bubble price. Writers would love to convince you that they know all about bitcoin and why it's bubble (or why it isn't a bubble), but the truth is that they have no idea. Neither do the media. And neither do I. Bitcoin offers an approach to money that, in its conceptual entirety, hasn't ever existed before now. Granted, part of the why here involves the innovation in the digital world.
But let's first consider the major arguments against bitcoin, fostered by these "bitcoin is a bubble type" who only promote this idea.
Why Bitcoin Is A Bubble
Bitcoin fluctuates too much. Because bitcoin's price fluctuates, it currently remains an unstable currency for the people saying it's a currency.
Few businesses accept bitcoin. This may seem like a problem now and it may be a problem in the future if business don't accept it, but bitcoin makes exchanging currencies cheaper than traditional methods. It costs less to travel with it, which, with Echo Boomers' love of travel creates a demand. That being written, it still needs more businesses to accept it.
Nothing backs up bitcoin - it is completely made up. This statement is completely true. Bitcoin is a digital ledger entry, which is nothing physical. Proponents will say that only a maximum of 21 million bitcoins can ever exist (in 2150, currently only around 12 million exist); whereas, as the Federal Reserve has demonstrated, the US Dollar limit might be infinite. Dollars may exist in physical form though, even if they increase in supply. Bitcoin has a supply cap, but is nothing outside of a ledger entry.
The government may try to block bitcoin. This is an excellent argument against bitcoin if and only if all other countries do this. If several countries decide to use bitcoins, this arguments could fall apart provided they can control production or a significant amount of production. In a country, like the Soviet Union from the past, decided to use bitcoin, it would mean nothing since they were unproductive. Many bitcoin proponents will point to bitcoin's rising popularity in Asia, which has many productive countries at this time. The counterpoint to these proponents is that we don't know what the leaders of these countries will do in the long run.
Bitcoin could be a scam. This point carries a lot of weight as well. Another derivative of this argument is that the government or a government institution is secretly behind bitcoin. To be fair to bitcoin here, I've heard people call the stock market a scam, so this is something that people tend to state when they don't understand or don't trust something.
Why Bitcoin Might Carry Value
Are banks necessary? With savings' accounts paying nothing in interest, bitcoin allows you to hold your money in an independent currency which can be turned into whatever local currency you need. Not only would this help with travel and keeping foreign exchange costs down, we would literally need no "local" currency whatsoever except for buying good in that amount. At the end of the day, it's much cheaper (no debit/credit card fees at merchants) than using the costly banking system. Oh, and yeah, the banking system costs consumers huge sums of money - bitcoin eliminates the middle man. The obvious counterpoint is that banks have a powerful lobby.
Popular among young men. Men tend to lead innovation. Pretty much every early successful industry was dominated by men initially. The same applies to many trends. For instance, Echo Boomers love their tattoos, but if you go back about 30 years it was only men who had tattoos. We may see the same with bitcoin.
Wait until the Muslims hear about it. Some people may not know this, but [update: dead link] Muslims are against earning interest (and paying it) ; in fact, it's one of the most wicked sins. Obviously, Islam isn't compatible with fractional reserve banking, and perhaps the world would be a better place if all of us weren't. Bitcoin may be viewed as an alternative.
Bitcoin seems more evolved than gold for transactability. In a world where fiat currencies collapse (and in the long run, they will), many trumpet gold as the ultimate solution. But transactionability with gold can be problematic with our current innovation. Paper currencies make the bartering easier because you don't have to carry gold around with you, so in a sense, paper currencies - backed by gold - make sense. Even though nothing "backs up" bitcoin, proponents state that it won't ever exceed 21 million. This means that it's final amount - 21 million relative to gold will be a price exchange similar to what a paper currency backed by gold would be. Also, bitcoin is extremely cost efficient to use and trade. A low cost way to exchange value could be an argument in favor for it.
Bitcoin is global. And that's scary because basically, if it takes off, it will be a reserve currency in the world. For all the talk about "no country wants to have the reserve currency," well, they may all get their wish with a computer program displacing them.
Final Thoughts
I look at this list and am convinced I just don't know. Bitcoin may be a great invention that many of us are skeptical about or it could be the next great bubble that pops. Either way, don't believe people who try to convince you that they know WITHOUT A DOUBT what bitcoin will be, because at best, we're all estimating and guessing. And based on the price of bitcoin today alone, I'd say this is normal human behavior.
