4 ms·

Are we in a cryptocurrency bubble? A comparison with the 2000 dotcom bubble

21 points by jimmygatz 9y ago

tfmatt 9y ago
Allow me to save you sometime, the author basically sums it up with this: Conclusion: It’s obviously a simplified model and you can play around with the numbers and get marginally different results, but the key insight is that even if you’re a fervent crypto believer, if you think there is a nonzero chance a crash might happen then in order to maximize your EV (i.e. make the most money) you should keep some % of your money on the sidelines to invest once the bubble pops and lower your average buy-in cost. The higher the probability you assign to a crash, the more money you should keep on the sidelines and vice versa
- _Chief 9y ago
  Sorry, trying to read this was so painful and time wasting on mobile. For anyone else not interested in scrolling: Conclusion: It’s obviously a simplified model and you can play around with the numbers and get marginally different results, but the key insight is that even if you’re a fervent crypto believer, if you think there is a nonzero chance a crash might happen then in order to maximize your EV (i.e. make the most money) you should keep some % of your money on the sidelines to invest once the bubble pops and lower your average buy-in cost. The higher the probability you assign to a crash, the more money you should keep on the sidelines and vice versa
User23 9y ago
The speculation about cryptocurrency valuations is a great example of how bad people are at dealing with radical novelties. People spout meaningless analogies, be they about decades old market crashes or centuries old speculative frenzies like tulip bulbs, as if they apply here when clearly they cannot.
- jimmygatz 9y ago
  Appreciate the feedback! Is there any example from history you think could be used as an analogy or do you think there's no way of comparing this to anything that's happened before? If so, how do you think about cryptocurrency valuation?
  - astrodust 9y ago
    This is the first time we've had a bubble around an asset with zero intrinsic value. Even tulips, or "worthless" Weimar Republic bills had negligible value. When Bitcoin implodes the value of your Bitcoin collectable merchandise will vastly exceed the value of your BTC. Those physical coins will slowly increase over time as their obscurity and notoriety grows.
    - jimmygatz 9y ago
      I hear this argument a lot and I'm never really sure what is meant by "intrinsic value"? Why do you think bitcoins have zero intrinsic value but tulips and weimar republic bills do? Bitcoin has many uses, but for the sake of argument let's take its often stated use of acting as digital gold. If gold is "intrinsically valuable" which I presume you think it is, then so is bitcoin. Gold is valuable because it is a good store of value due to its properties of being scarce, long-lasting, easily divisible, transportable, etc. Bitcoin is all these things too and in fact is a much better store of value than gold. I see no reason, other than "brand", why gold should be "intrinsically valuable" but bitcoin not. Btw, gold is a 3-6trillion dollar market depending on how you do the accounting (https://schiffgold.com/commentaries/just-how-big-is-the-gold-market/ https://schiffgold.com/commentaries/just-how-big-is-the-gold...).
      - User23 9y ago
        Good luck transacting in gold, because it can't be done efficiently due to assaying costs. You can transact in metal bars stamped by Credit Suisse or another bank, or coins minted by some sovereign or other trusted authority, but nobody in their right mind is going to accept plain gold for any transaction. Without the imprimatur of some authority, it's simply not trustworthy.
- fiddlerwoaroof 9y ago
  Of course, this is more or less what people said during the dotcom bubble.
wetpaws 9y ago
Bitcoin chart is a fractal. Every single time in the history of it there is a post about it being a bubble. $100, $1000, $3K, $4K, $10K, I keep seeing this for yyyyears.
- astrodust 9y ago
  There's a limit to how stratospheric this price will go because at some point it will blow out so hard it poisons the whole Bitcoin economy. If it doesn't happen before $100K I'd be truly astonished. The longer this goes on, the higher it goes, the harder and faster it will crash. A lot of people are going to be caught holding nothing.
more_corn 9y ago
As someone standing on the outside, the massive boom in value certainly sounds like a bubble to me. I'm hearing all the same stories: the newly rich buying absurd cars, "my friend made x much". Eventually all the tourists who want on will get on, then they'll start gettin back off.

21 points by jimmygatz 9y ago

Allow me to save you sometime, the author basically sums it up with this: Conclusion: It’s obviously a simplified model and you can play around with the numbers and get marginally different results, but the key insight is that even if you’re a fervent crypto believer, if you think there is a nonzero chance a crash might happen then in order to maximize your EV (i.e. make the most money) you should keep some % of your money on the sidelines to invest once the bubble pops and lower your average buy-in cost. The higher the probability you assign to a crash, the more money you should keep on the sidelines and vice versa

_Chief 9y ago
Sorry, trying to read this was so painful and time wasting on mobile. For anyone else not interested in scrolling: Conclusion: It’s obviously a simplified model and you can play around with the numbers and get marginally different results, but the key insight is that even if you’re a fervent crypto believer, if you think there is a nonzero chance a crash might happen then in order to maximize your EV (i.e. make the most money) you should keep some % of your money on the sidelines to invest once the bubble pops and lower your average buy-in cost. The higher the probability you assign to a crash, the more money you should keep on the sidelines and vice versa

User23 9y ago

The speculation about cryptocurrency valuations is a great example of how bad people are at dealing with radical novelties. People spout meaningless analogies, be they about decades old market crashes or centuries old speculative frenzies like tulip bulbs, as if they apply here when clearly they cannot.

jimmygatz 9y ago
Appreciate the feedback! Is there any example from history you think could be used as an analogy or do you think there's no way of comparing this to anything that's happened before? If so, how do you think about cryptocurrency valuation?
- astrodust 9y ago
  This is the first time we've had a bubble around an asset with zero intrinsic value. Even tulips, or "worthless" Weimar Republic bills had negligible value. When Bitcoin implodes the value of your Bitcoin collectable merchandise will vastly exceed the value of your BTC. Those physical coins will slowly increase over time as their obscurity and notoriety grows.
  - jimmygatz 9y ago
    I hear this argument a lot and I'm never really sure what is meant by "intrinsic value"? Why do you think bitcoins have zero intrinsic value but tulips and weimar republic bills do? Bitcoin has many uses, but for the sake of argument let's take its often stated use of acting as digital gold. If gold is "intrinsically valuable" which I presume you think it is, then so is bitcoin. Gold is valuable because it is a good store of value due to its properties of being scarce, long-lasting, easily divisible, transportable, etc. Bitcoin is all these things too and in fact is a much better store of value than gold. I see no reason, other than "brand", why gold should be "intrinsically valuable" but bitcoin not. Btw, gold is a 3-6trillion dollar market depending on how you do the accounting (https://schiffgold.com/commentaries/just-how-big-is-the-gold-market/ https://schiffgold.com/commentaries/just-how-big-is-the-gold...).
    - User23 9y ago
      Good luck transacting in gold, because it can't be done efficiently due to assaying costs. You can transact in metal bars stamped by Credit Suisse or another bank, or coins minted by some sovereign or other trusted authority, but nobody in their right mind is going to accept plain gold for any transaction. Without the imprimatur of some authority, it's simply not trustworthy.
fiddlerwoaroof 9y ago
Of course, this is more or less what people said during the dotcom bubble.

wetpaws 9y ago

Bitcoin chart is a fractal. Every single time in the history of it there is a post about it being a bubble. $100, $1000, $3K, $4K, $10K, I keep seeing this for yyyyears.

astrodust 9y ago
There's a limit to how stratospheric this price will go because at some point it will blow out so hard it poisons the whole Bitcoin economy. If it doesn't happen before $100K I'd be truly astonished. The longer this goes on, the higher it goes, the harder and faster it will crash. A lot of people are going to be caught holding nothing.

more_corn 9y ago

As someone standing on the outside, the massive boom in value certainly sounds like a bubble to me. I'm hearing all the same stories: the newly rich buying absurd cars, "my friend made x much". Eventually all the tourists who want on will get on, then they'll start gettin back off.