Two weeks ago, I noticed a “flash news” showing the Bitcoin price and I thought “OMG! This thing is going down now!” To be honest, I wrote one piece on Bitcoin back in September 2017. I’m not an expert in blockchain technology and I don’t pretend I know everything. However, when pro-Bitcoin investors get my favorite quote as their main argument, this is where I start to get very cautious. What’s the quote?
“The thing is, we have never experienced anything like this before”
Or if you prefer the shorter version:
“This time, it’s different”
Back in September 2017, the Bitcoin was surging out and was about to reach the sky.
The magical coin was the most interesting investment ever and then… a few months later, interest for the currency faded as new competitors arose and other kinds of technical problems arose…
Now, before you want to hit me with your “you don’t understand what a blockchain is”, I want to make things clear: I’m not discussing the coin as the technology here; I’m discussing the coin as a potential investment. In that regard; a coin is just like a US dollar or an ounce of gold; something that has value only if someone else agrees with its value and with the owner.
This Time is Different, Flashback From 1999
Do you remember what happened before the tech bubble? Yes, people were saying “this time, it’s different”. They were also saying: “it doesn’t matter if there are no sales, it’s the internet, you just don’t get it”.
And then, many tech apostles were telling the world how the internet would change everything.
They were complaining that most people didn’t understand the impact of this new technology.
They were saying that everybody will use internet in the future for things that we can’t even imagine (in 1999).
They were right on all three points… but many techs crashed and never bounced back; why? What happened back then is happening again with cryptocurrencies. Back in 1999, what was different is the internet coming into our life. The “new economy” didn’t mean that pages views and clicks would replace profit. It meant that consumers would make transactions in a different manner. 20 years later, we can get a full grasp of what internet changes (and keep changing) in our daily lives. But the core of the investment proposition wasn’t different; all companies that were showing a “dot com” name with millions of pages views with no sales didn’t live long. All crypto currency showing “coins” names with millions of miners still show no sales or profit… guess what? They will end-up pretty much like the dot coms…
Then again, I’m going to write it again to make sure you get it; I’m not talking about the blockchain technology. This technology will be used by many companies in various sectors for the greater good. The problem in 1999 wasn’t the Internet, it was the fake companies that surfed on the trend.
Mike, will you write again when the Bitcoin hits $50,000 in value?
Some will just wait until, maybe one day, the Bitcoin bounce back to a ridiculous number again to call me out. That would be fair and I’ll definitely write again if the Bitcoin even just goes back to its highs of $14K’s USD. It would still be pure speculation.
For those who dream that the Bitcoin (or any other cryptocurrency) becomes the new “gold standard”, I see a few problems I would like you to solve for me.
We all know that there is a finite number of coins that can be “mined”. Therefore, the total amount of money is known and is not controlled by any government. That makes many people wanting to “free the world from government” and use the Bitcoin as a main payment standard.
First, the coin is divisible, therefore, it’s like printing new money. If you can divide a coin to 0,0000001 Bitcoin and this is enough to pay for a bus ticket, it’s pretty much like printing new money. The solution is easy; just increase the bitcoin value and your 0,0000001 Bitcoin now worth enough to pay for a pizza instead of a bus ticket. So how do we solve this problem?
Second, imagine that a company like BlackRock (BLK) with over 6 trillion USD in assets under management decide to control the Bitcoin by buying a bunch of those. How would you stop that? Instead of having the US Government controlling the US dollar, you would have BlackRock, Apple or Microsoft controlling 20% of the currency. This would be enough to create market swings form one side to another. Welcome hyperinflation!
Then again, the blockchain technology might change our life the way internet did 20 years ago, but that doesn’t mean that all coins are worth something! Always invest in something making money, not growing in value based on pure speculation.