It has to be the giddiest feeling in the world. Better than a day at Disney World, maybe even better than sex. What we’re dealing with here is the thrill of victory by having had the brilliance to invest in BitCoin at the beginning of this year. Bingo, you just quadrupled your money.
If you put enough dough into the BitCoin basket, you will rank as one of the top investors of 2017. At least so far in 2017, who knows what follows?
The value of all 21 million BitCoins at roundly $4000 each works out to over $70 billion. Everywhere news headlines are explaining how this miraculous invention of technology is worth more the value of Netflix and PayPal. Together these two companies have over $10 billion in revenues, tangible assets in the billions and profits as well.
If you invested in Netflix or PayPal this year, you’ve haven’t suffered with each gaining over 50%. But, with BitCoin, you shot out the lights: a quadruple. Everywhere from water coolers to Board Rooms to Country Clubs everybody is talking about the BitCoin phenomenon. It appears that most of the chatter is about the price performance more than Bitcoins potential to disrupt the world of banking and finance.
Is The Past Prologue?
There is no question in the past three years Bitcoin has gone from a nifty technology to acceptance among a surprising number of mainstream financial industry players including JP Morgan Chase.
There is also no question that the underlying blockchain technology is a work of genius proportions and has lasting value. The question will always remain, how much value is there in Bitcoin. It is worth $70 billion, $7 billion or 7cents. There are no metrics to value the company. Faith is perhaps the single most important reason to account for the highly elevated price.
We see this phenomenon elsewhere: Amazon, Netflix and Tesla. Unfortunately there is another example: the dotcom bubble. That was the era when companies that did little more than creating and hosting websites were routinely valued in the stratosphere.
What Do The Critics Have To Say
The glow around Bitcoin seems to be the fascination behind the spectacular raise in price, but is this really a good thing for broadening it acceptance? Most likely it is a deterrent.
If you are a business making and receiving a large number of frequent payments, no matter in which currency, you want predictability. How can there be any degree of predictability when prices are rising dramatically on a daily basis. This argument may be weak in a rising price market but what happens, if and when Bitcoin prices take a dramatic dive? It is hard to imagine a situation where there is no harm.
Here is one possibility that could at least temporarily burst the bubble. What if government agencies like The United States Treasury Department start making noises about taxing transactions or worst applying onerous reporting regulations? There is nothing more sobering than government intervention to challenge the almighty faith in Bitcoin.
A New Dot Com Every Minute
One of the distinguishing features of the bubble in 2000 was the proliferation of dotcoms to fill every imaginable service. The cryptocurrency situation is shaping up pretty much the same way. At mid year, one self-proclaimed crypto expert noted there were 847 competitors. More recently the number quoted was 1059. How could there possibly be a need for this many?
More to the point, if market entry is this easy, how can such an astronomical value be placed on Bitcoin and Ethereum: it can’t, there is no justification whatsoever.