Is Bitcoin in a Bubble?

It is closer to the moon than 2017, so are we headed for another crash?

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Today is different. There is a huge price rise but not the same level of retail interest. Today hedge funds are buying bitcoin, Paypal supports it, and the US treasure has just allowed bitcoin to be used for settlement in the US financial system. Based on Google searches for “how to buy bitcoin”, there is much less interest today than at peak insanity in 2017.

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Anecdotally this seems to be the case too. I remember being given advice from a construction worker after the NIPS conference in December 2017. He said that Bitcoin was the future, but couldn’t even explain what Bitcoin was. This was eerily close to the story in 1929, when the shoe shine boy giving stock tips was a signal to get out of the market. I haven’t heard much talk like that about Bitcoin today. The stock market is a different story though.

Why Bullish?

So it isn’t only retail fools (I’ll censor myself from using r/WSB language) that are driving the price up. But why is it going up?

Wall Street Bets makes everything else look less risky

The stock market feels insane right now. Reddit is always right and stocks only go up. Ignore what happens to unemployment or GDP. Michael Burry and the big short are ancient history, JPow and his printer will save us all. I’m not sure if this is a bad policy or if there will be inflation. Maybe with bonds returning 0 everything makes sense, but something feels off.

A couple weeks ago I overheard someone at the gym say “I’ll buy Microsoft or Sony to get a safe 20% return instead of trading riskier stocks”. Another shoe shiner. I think the stock market insanity is making Bitcoin look saner by comparison.

Maybe Fiat Money isn’t Everything?

After reading Debt: The First 5000 Years, I’m much less confident that our current form of fiat currency will live forever. It’s a recent invention and there have been plenty of instances of currencies being destroyed through printing.

We all kind of knew this, which is why gold has always been an important asset. Bitcoin is just a cool version of gold.

Of course the hedge funds could dump their Bitcoin, and nobody is forcing institutions to convert transactions to Bitcoin. The price could drop as fast as it has risen. I’ve been wrong when I thought $500 was too high a price for a Bitcoin, so even though I’m bullish there is still big risk.

Rene Bidart
Rene Bidart
PhD Candidate

PhD candidate at University of Waterloo - Deep Learning

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