The nature of the cryptocurrency market facilitates bubbles: investors can easily build castles in the air using terminology that the common man doesn’t really understand, the philosophy of decentralization breeds both hardcore fanatics (libertarians who would rather die than let their money go back to fiat, creating an impenetrable sell wall that’s at least above $0) and amateur speculators (me), and the way that the internet allows the democratization of buying/selling various coins virtually eliminates the possibility that countries can “ban” the activity.
In short, people like to gamble while pretending that they’re not gambling. For example, check out the history of the stock market. The dotcom bubble burst because those companies actually stopped existing, not because people wised up and realized that they were way overvalued. Manic speculation is a fundamental human flaw, and it’s not going away any time soon. Here’s the creator of Dogecoin talking about his coin when it hit a market cap of $1bn:
“I think it says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn’t released a software update in over 2 years has a $1B+ market cap.”
People don’t care about a working product. They care about the price.
My fingers are crossed that the 2017 bubble is popping (and that’s a very, very good thing), but I’m willing to make a long-term bet that the price hasn’t even begun to peak.
And, because I believe that, when it comes to predicting stock and other asset prices, you can never really be wrong if you don’t set a target date, I think the price will start to take off again by late 2019 / early 2020. That’s a guess, but, if you’ve been here for a while, I also guessed that RaiBlocks (now Nano) would be a Top 25 coin when it was sitting at ~.50c and spot #102. Even after this “devastating” drop, you still would have made a 26x return.
Don’t Buy Bitcoin: You Know It’s Going to Crash
Here are some reasons you should start buying today.
- There have been multiple Bitcoin rallies in the past. Let’s start in 2011, when the price took off to to ~$30 before dropping to $3. Correction: 90%. I’m not going to include the rallies when one BTC cost less than a dollar because I believe those rallies were too easily manipulable (even more easily manipulable than today’s).
2. In 2013, Bitcoin went from ~$200 to ~$70. Notice anything special about those numbers? (What’s today’s ATH?) Correction: ~60%.
3. In 2014, Bitcoin went from ~$1100 before stabilizing at around ~$300. Correction: ~35%.
4. Now, after a massive bull run, Bitcoin hit an ATH of ~$20k before falling down to today’s price of $7k. Correction: ~65%.
Right in line with all of the other “crashes” we’ve seen, except now the Lightning Network is poised to turn Bitcoin back into a usable product. For those who don’t know, the Lightning Network essentially records every transaction on a certain payment channel before recording those transactions on the actual blockchain. Right now, every transaction has to be recorded on the blockchain, no matter how small and negligible, and those small payments are often competing for the same attention as multimillion dollar transactions. The miners are obviously going to give precedence to the transactions that they can yield the highest reward from, so your $15 transaction to your grandma is going to cost you $5 and it’s going to take twelve hours. Safe to say that she won’t be convinced that this is going to take over JPMorgan any time soon.
But if the transactions aren’t recorded on the blockchain, what’s the point? Doesn’t that undermine the whole point of using bitcoin? What’s it based off of if it’s not the blockchain?
The secret lies in opening a payment channel. I can’t just send .1BTC to grandma willy-nilly and leave it unrecorded on the blockchain. To do that, we have to first open a payment channel, which is essentially a lock box containing a certain amount of BTC from each of us, so that there’s still some record of our transactions. For example, instead of sending money to granny, let’s say you and your best friend like to make bets in bitcoin, so you both frequently exchange bitcoin between each other. To set up a payment channel, you could both send 10BTC to each other to create an “Opening Transaction,” in the blockchain. You’re essentially creating a pool of money between you two that you expect to transact at some point in the future. Instead of sending each and every transaction to the blockchain, the Lightning Network would record the transactions between you two and finalize the payment when you two decide to close the payment channel.
Don’t listen to the FUD. Bitcoin’s not dead. It’ll probably never die. If it does, rest assured that there’s enough demand for cryptocurrency in general to still make it a good investment.