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Bitcoin Bubble Makes Dot-Com Look Rational
- nabla9 9y agoFinally an article that gives some numbers to quantify Bitcoin market. Transaction fees as P/E analogy seems wrong.
- rejschaap 9y agoBitcoin could hit $10.000 any moment now. Who is buying and why?
- jmkni 9y agoPersonally I wonder if the rise in Bitcoin could be linked to Russian sanctions like the Magninsky act? Could now blacklisted Oligarchs who were previously using western financial institutions to launder their money now be using Bitcoin instead?
- lawlessone 9y agoit would probably be a much bigger run up if they did > From what i have heard anyway the best way to do that through bitcoin is to pay someone to mine it. That way you get new "clean" coins.
- jmkni 9y agoThat makes a lot of sense, that way the person is also running a business etc also
- zdkl 9y agoVC-like money? The risk/reward schedule on bitcoin is not that far out of ordinary when compared to market conditions on "comparable" investments. For some generous definition of comparable.
- empath75 9y agoIf you go to bitcoinity and check the price of bitcoin, the first exchange they list is bitfinex. The price they list is in USD. That’s actually wrong. There are no dollars on bitfinex. They use a currency called tethers which they claim is backed 1-1 by dollars but almost certainly isn’t. They’ve created close to a billion dollars worth of that token during this run up. Rumor has it that they’re using those tethers to buy btc on their own exchange and manipulate the price. Once people realize those tethers are worthless and they can’t withdraw dollars, they’ll start using them to buy btc at any price and withdraw them on the exchange causing a massive run up in btc price as they make a run on the bank. It’s not really an increase in btc price but hyperinflation of tethers.
- pc86 9y ago> They use a currency called tethers which they claim is backed 1-1 by dollars Didn't they just recently say they're not backed 1-1 by USD?
- liaukovv 9y agoHow do you quantify what p/e of a US dollar is? Doesn't make much sense to me
- IanCal 9y agoIs price compared to transaction fees really a good measure? Holding them doesn't mean you get the transaction fees, and increasing transaction fees would lower the 'P/E' but make bitcoins obviously worse to have or use.
- tobyhinloopen 9y agoThe idea is great, but in reality these stupid crypto coins are practically useless and wasting HUGE amounts of resources. Bitcoin is said to be consuming as much power a some countries, and still rising fast, while the amount of transactions is comically low compared to the power consumption. Bitcoin in its current state can never be a thing to actually buy something with. I don't see any other long-term use for bitcoin than just making a couple of bucks before it eventually crashes down like the Hindenburg. I'm not saying that all cryptocoins will suffer that fate, but I truly believe bitcoin specifically will.
- linards 9y agohow do you know?
- tobyhinloopen 9y agoHow do I know what? That it will crash and burn? Because it is a useless resource. It is only worth something because other people say it is worth something, and unlike paper money it is not backed by anything significant. It is a bubble of hot air, ready to pop at any time. It might continue rising for years or decades. But it is not usable as a real currency, so it will always remain a useless waste of resources. There might be a replacement cryptocoin that will actually be useful in the future, but it won't be bitcoin. Bitcoin will be the thing that started the "future", but it will not be the thing that remained the future.
- linards 9y ago:D yeah, paper money .... backed by what? debt, yes. Militaryindustrial complex, yes. QE, yes. bitcoin is backed by mathematical algorithm, that has a limit on the amount of coins mined. Go read some more Wallstreet Journal
- benbou09 9y agoWhat do you mean by 'anything significant'? Paper money is not backed by anything material. Rather, it is backed by institutions (central banks, governments, banks) and individuals using them. To me, that's pretty much the same as cryptocurrencies.
- linards 9y agoits going to crash big time, opportunity to buy more
- bhickey 9y agoTulips are on their way back. Let's get in on the ground floor!
- linards 9y agoyou do not understand bitcoin, and thats ok :)
- celticninja 9y agoBitcoin story about price - check Tulip reference - check
- criddell 9y agoIt really feels like there has to be a bubble inflating. If this isn't a bubble, then what on earth is happening? People don't seem to be spending it.
- f_allwein 9y agoOld saying: "What's common in every bubble is the belief that this time, it will be different." -> if you invest in cryptocurrencies, make sure not to invest more than you can comfortably lose (probably a few percent of your overall funds).
- chrisco255 9y agoI think it amusing that the value of all 90s dot com IPOs were $44 billion. If that's accurate then it sounds like the dot com market as a whole was a bargain, because Google alone is worth >$700 billion and Amazon is worth >$500 billion.
- sanmon3186 9y agoBubble or not, one obvious difference with cryptocurrencies is, it is not limited to a geography or a country. I hesitate to use the term “insurance” but the risk is spread across the globe. That plus the freedom to get into it (and leave) anytime makes it unique in a way.
- drcode 9y agoOh, but the naysayers in the media who have predicted bitcoin's collapse every month for years and have been wrong every time are of course given a free pass and are allowed to say "this time it's different" once again.
- boyce 9y agoI think this is clearly not equivalent At the moment it feels like a parent warning a child - at some point you have to decide to step back and let them learn the painful lesson for themselves
- decentralised 9y agoI think you are making a mistake by only looking at cryptos as "coins". There are businesses being run on and around public blockchains and the cryptoeconomic incentives will ensure the perpetuation of the network. As long as there is value in maintaining public blockchains, their tokens (BTC, BCH, ETH, etc) will hold monetary value. https://i.imgur.com/AfGNEA5.jpg https://i.imgur.com/AfGNEA5.jpg
- csomar 9y ago> Take dot-com stocks, which were the biggest bubble of the past few decades, and likely the largest in stock market history. At the height of the dot-com stock bubble, the technology-heavy Nasdaq stock index had a price-to-earnings ratio of 175. In the past year, bitcoins have generated transaction fees of nearly $219 million. And at $9,600 a piece, the total value of all bitcoins -- their market cap -- now tops $155 billion. That gives bitcoins the equivalent of a trailing P/E ratio of 708. What kind of logic is that? Holding bitcoin doesn't give you any earnings. In fact, you need to spend electricity and equipment if you want to collect those fees. Apples and Oranges.
- dmichulke 9y ago> What kind of logic is that? Holding bitcoin doesn't give you any earnings. Well, holding USD gives you inflation (i.e., negative interest). Holding BTC doesn't (assuming the 21 mn are already priced in).
- csomar 9y agoEh, nope. That's not how it works. Holding 1 USD will give you 1 USD after 1 year. Holding 1 Bitcoin will give you 1 Bitcoin after 1 year. You are confusing the unit you are holding with the value "vs" another unit. That depends on the market and the external factors (like inflation, interest rates, etc...) But holding 1 Unit will always give you 1 Unit of whatever you are holding.
- dmichulke 9y agoYou are deflecting to a problem of definition ;) Yes, you have the same amount but no it doesn't purchase as much as it did one year ago. Units of accounting only make sense within a context of other units of account. A dollar by itself is just a piece of paper if you cannot buy an amount of wheat, water or square meters with it. And by that measure the dollar is losing value vs a bitcoin.
- csomar 9y ago
- chrisco255 9y agoP/E is a nonsensical measure for currency and assets. No one holding BTC expects to earn transaction fees. The miners get those fees. If we're talking about market cap of the miners themselves then this would be useful. Otherwise, the value of BTC should go up the smaller the transaction fees become. Why? Because less value is lost in transmission.
- DINKDINK 9y agoWas the collapse of the German Deutsche Mark, the Zimbabwean Dollar, the Venezuelan Bollivar a bubble too? Good money drives bad money out, so I’d argue that no, Bitcoin’s price is not a bubble. Clearly there’s no price that bitcoin holders will sell at so they’re clearly exiting the USD ecosystem. I think the logical fallacy that’s occuring right now with critics of bitcoin’s price rise is that all bubbles has dramatic price rises (Pets.com, endless bullshit dot com IPOs, housing bubble) but not all dramatic price rises are bubbles (currency collapses) Because bitcoin is measurable scarcity one can provable show it’s a good store of wealth. OTOH, the ICO binge is an apt analogy for the IPO craze of the 90s. Investors are buying up securities with no viable business model expecting returns which isn’t going to happen on software that anyone can copy and run themselves. It doesn’t take a $200 million raise for a few engineers to build an MVP. It does take $200 million to run a successful Ponzi scheme (ICOs are probably not scarce and are therefore improper stores of wealth)
- shp0ngle 9y agoBitcoin has scarcity, but so does Litecoin or Bitcoin Cash What makes Bitcoin special?
- kwikiel 9y agoNetwork effect - same thing for Facebook. The more valuable bitcoin is the more secure and more resilient. Thus purely by price appreciation bitcoin is doing hiperbitcoinization - once people realize that fundamental value of fiat currency is a myth, more fiat currencies will collapse
- 0bsidian 9y agoThis is exactly right. If you create a company and copy Facebook's code, the resulting company will not be worth as much as Facebook. Why? Because much of Facebooks' valuation derives from its network. Bitcoin is the same.
- notahacker 9y ago
- 0bsidian 9y agoThe idea that you can value bitcoin via P/E, utilizing mining fees as the "E" is incorrect. It's akin to valuing gold through P/E, by utilising the cost of extraction as the "E". This is obviously wrong because holding gold doesn't entitle the bearer to a portion of those mining costs, same with Bitcoin. The reality is that gold cannot be objectively valued because it doesn't have an objective value (beyond its industrial use, which accounts for less than 10% of its actual current price). As a society, we collectively agree that gold is worth something because we agree that it is worth something. With Bitcoin, we are doing the same. But if we had centuries to consolidate our appreciation of gold, we are compressing price discovery for Bitcoin in just a few years. Interestingly, Bitcoin offers several improvements over gold (being digital, lightweight, cheap to move, proven limited supply). It also has drawbacks. Lastly: the author's contention that you can take value away from Bitcoin by just copying its code is misguided. It would be akin to saying that you can replicate Facebook's valuation by copying its codebase. Facebook's value comes from its network. The same happens with Bitcoin, since its fundamental properties (censorship-resistance, security) are functions of network size and node-dispersion.
- Nursie 9y agoYou remember that there were other social networks before facebook dominated everything, right? Network effect now is no guarantor of the future.
- kss238 9y agoThat doesn't mean Facebook is overvalued though. Just because it's value could disappear doesn't mean it has no value.
- Nursie 9y agoIt doesn't mean BTC is overvalued either. But BTC could well prove to be cyrptocurrency's Friends Reunited or Bebo.
- 0bsidian 9y agoI don't think I claimed that anything is a "guarantor of the future". I am simply pointing out that networks are valued with reference to their size, not on whether their code base is unique. Bitcoin and Facebook are two examples of this principle.
- y04nn 9y agoPeople should not see cryptocrruencies as a stock market, you should not expect any ROI, it's not a placement. Cryptocrruencies (for me) are meant to be used, exchanged, a good metric to value a cryptocrruencie should be the 'cash flow (? exchange of money per unit of time)'. Bitcoin is actually inefficient with its high transaction fees.
- davidmurdoch 9y agoTransaction fees are about $5-7 USD right now, which for transactions over $200 makes it cheaper than using a credit card, and definitely cheaper than a wire.
- jpatokal 9y agoAttempting price/earnings analysis here is not sensible, because bitcoin is not a stock: simply owning some doesn't earn you any "dividends" (mining rewards). A better parallel is gold, which is a store of value that produces nothing of value for its owners, but is valuable because the supply is limited and there's a collective belief that this shiny metal is worth much more than its practical uses. Bitcoin is going up because of those same properties. If supply ever becomes unlimited (say, there's a critical bug found), or its investors lose faith, it will crash.
- Tepix 9y agoFor the Casper update of Ethereum with proof of stake, this may turn into a useful metric. You can use your ETH to participate in the PoS lottery and thus earn ETH (a kind of dividend).
- martinko 9y ago> bitcoins have generated transaction fees of nearly $219 million. And at $9,600 a piece, the total value of all bitcoins -- their market cap -- now tops $155 billion. That gives bitcoins the equivalent of a trailing P/E ratio of 708. Absurdly idiotic analogy, as holding the underlying is in no way related to the revenues that miners earn.
- singold 9y agoAFAICT transaction fees aren't the reason someone "invests" or buys bitcoin, if you buy bitcoin you don't get a fraction of those fees. If you want that you should invest in mining, so I think the initial part of the analysis is flawled. The second part looks like nothing to say, backed by a lot of non sensical numbers, but I'm not a native english speaker and also generally don't read nor like economic "analysis", so I may be wrong
- Tepix 9y agoThe high transaction fees and long transaction delays are turning into a reason why people are starting to question bitcoin.
- pmorici 9y agoHere is a chart of transaction volume on several of the major crypto currencies... https://bitinfocharts.com/comparison/transactions-btc-eth-bch-xmr.html https://bitinfocharts.com/comparison/transactions-btc-eth-bc... Anyone see a trend...
- Tepix 9y agoYup. Bitcoin transactions have stagnated for the last year or so. https://bitinfocharts.com/comparison/transactions-btc-eth-bch-xmr.html#1y https://bitinfocharts.com/comparison/transactions-btc-eth-bc...
- charlesdm 9y agoI don't get this. The dot-com bubble ran up to $6.7tn in market cap, in 2000, before crashing down to $1.7tn. The crypto space, which seems to be shaping into an entirely new asset class, has a $300bn valuation. That's less than the value of Facebook. The only reason why people are shouting bubble is because people were able to get in from the start, when these coins were 10 cents on the dollar. But when Facebook IPOed after 10ish years, it had a valuation of $50bn. But early angel investors also got in at 10 cents on the dollar. It could eventually become a bubble, but I don't think think we're even nearly there yet.
- beaconstudios 9y agoalso the fact that 99% of bitcoin's value is tied up in financial speculation rather than real world use cases, and the remaining 1% is drug dealing.
- charlesdm 9y agoGold has close to no use cases (80%+ is store of wealth) and seems to be doing fine at an $8tn global market cap. Of the potential 21m Bitcoin in existence, 4m are assumed to have been permanently lose. 16m have been mined. That leaves 1m coins left to be acquired in the future.
- pc86 9y agoIs there a timeframe for how long it will take for those 1m coins to be mined? Is it equally likely that the price craters or skyrockets once that happens?
- charlesdm 9y agoI think the price will skyrocket anyway, because there is a limited supply. In a way, I believe it could be like an epic short squeeze. You have people wanting to buy in (retail + institutional money is coming in) over the next few years. If you take the example of oil -- once the price of a barrel goes over a certain threshold price, you'll go and explore new wells that were previously not profitable. And you will eventually get more supply after a while. That's just not the case with Bitcoin (and probably Ethereum after next year).
- deleted 9y ago[deleted]
- pmorici 9y agoCalculating a P/E on transaction fees seems silly because frees on a crypto currency aren't related to the amount of value moved they are related to the number of bytes of space your transaction takes which in a simple transaction is most effected by the number of source and destination addresses used in the transaction. A better way to calculate this fake P/E ratio would be to look at the total USD volume of Bitcoin transactions and take 2% of that as the "earnings" logic being that if a coin were a credit card like company their earnings would be 2% of thier transaction volume. Still a bit of a contrived metric but at least related to the economic activity taking place.
- matte_black 9y agoMy only resentment toward Bitcoin is that if I had gotten in early enough there could have been some easy money to be made, but only because I believe in the Greater Fools theory, not because I actually believe in Bitcoin as a currency.
- scotty79 9y agoI never believed bitcoin as a currency same way I don't believe gold or art as a currency. But bitcoin for me is something like art or gold (scarce, durable) easily, securely transferable to anyone on the planet within less than a day without the need for any third party. That's bound to be worth something.
- bufferoverflow 9y agoDot-com bubble lost $1.7 trillion when it popped. All cryptocurrencies combined are like $300 billion, and they will definitely not go to zero if/when it pops.
- drcode 9y agoThe news media have posted stories predicting Bitcoin's collapse pretty much every month since 2012... but I'm glad that once again they're sharing some morsels of their expert insight with us peons on why Bitcoin is overvalued.
- cup-of-tea 9y agoUltimately this will come down to what value Bitcoin really has to society. An investment is when you work to receive something you don't want, but that you think other people will want in the future so that you can exchange it for things you do want. If you work for money then you do investment. By working for money you are betting that when you need food at the end of the week the shopkeeper will take your money. Investing in other things is no different. You make a bet that people in the future will want to trade the thing you buy for things that you want at that point. For example, you could buy a small amount of gold every month and when you are ready to retire buy an annuity with the gold. That's if anyone actually wants the gold in 30 year's time. If they don't then you'll have to eat the gold. People often say that cash is a bad investment, but actually it's really great as long as you plan to spend it soon. What they mean is it's not a good long term investment, of course. But cash stays valuable because unlike other things you can exchange it for things you want almost immediately. Bitcoin is now not like cash because of the high transaction fees. So it now competes with things like gold. So you have to ask yourself: what do you think will still be valuable in 10, 20, 30 years time? Gold? Bitcoin? If Bitcoin isn't a yes for enough people, then it's a bubble.
- NicoJuicy 9y agoI just went out after a long time. Banks are coming in and i don't trust them. They are smarter then me. I took out my profits and i'm doing stocks since a 1/2th year, i'm focusing on that now. Here my reasoning: 1) BTC takes too long to make a transaction ( 2,5 hours) which make me kinda doubt the use case. 2) the enterprise is adopting the blockchain, which is irrelevant to bitcoin. If they would do crypto, they will create their own coin. 3) the guy further in the street is also buying crypto ( not in IT). Which for me, is a sign of a bubble. He knows nothing about the tech. It won't ever be used for the original porpose at this valuation. 4) First time adopters are going out now @ 10 k., check out reddit: https://www.reddit.com/r/Bitcoin/ https://www.reddit.com/r/Bitcoin/ 5) The HODL meme is currently blocking the bubble to burst. Some people are willing to HODL even when 75% fades away. PS. Banks won't adopt the HODL meme :) I have second doubts though, it truelly is an amazing tech.
- Twisell 9y ago41 points 109 comments as of writing one hour after publishing. Look like bitcoin advocates have specifically vetoed this publication. This is probably one of the only the downside of crowd moderation. This would be an interesting phenomenon to investigate if someone have access to HN logs.
- deleted 9y ago[deleted]
- TheCoelacanth 9y agoThis article seems to be making the assumption that price-to-rent, price-to-earnings and price-to-transaction-fees ratios should all naturally converge to the same amount. I don't see any plausible justification for this assumption, in fact it seems like it is trivially disproved. The US dollar has no transaction fees, so it's price-to-transaction-fee ratio is infinite. This whole article is based on a false premise.