{"id":110679,"date":"2019-07-25T12:03:22","date_gmt":"2019-07-25T19:03:22","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=110679"},"modified":"2019-11-07T02:51:59","modified_gmt":"2019-11-07T02:51:59","slug":"bitcoins-fading-dream-the-reasonable-case-for-why-btc-could-fail","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/bitcoins-fading-dream-the-reasonable-case-for-why-btc-could-fail\/","title":{"rendered":"Bitcoin’s fading dream, a reasonable case for why BTC could fail"},"content":{"rendered":"

There are three narratives often used to describe Bitcoin<\/a>\u2014that it\u2019s entering a new bull run, it\u2019s a tulip mania, or that it\u2019s comparable to the dotcom bubble. But there is a fourth more pessimistic scenario for BTC, according<\/a> to Zcash<\/a> founder Zooko Wilcox<\/a>.<\/p>\n

1) Market is in a new bull run<\/h2>\n

This scenario most commonly touted by influential cryptocurrency pundits is the bull case. People think the \u201cgood times are about to come roaring back,\u201d as Wilcox aptly put it. That Bitcoin is in its “fourth parabolic phase<\/a>” and ready to\u00a0explode unlike any asset before it. The primary support for this theory is speculation around the influx of institutional money<\/a>\u00a0and exponential<\/a> user adoption.<\/p>\n

Developments such as Fidelity making Bitcoin available<\/a> to institutions, Bakkt and others creating BTC-settled futures<\/a>, the rapid growth<\/a> of Grayscale\u2019s<\/a> Bitcoin trust, and record<\/a> paper BTC futures sales all support this narrative.<\/p>\n

The bull view is maintained by some of the most respected influencers in crypto, including Anthony Pompliano<\/a>, Thomas Lee<\/a>, Peter Brandt<\/a>, and Pierre Rochard. But, as Wilcox pointed out, these pundits may be vulnerable to overconfidence because they\u2019re \u201cshilling their bags.\u201d In other words, most advocates tend to have enormous Bitcoin holdings that may impair their objectivity.<\/p>\n

Additionally, this perspective is over-emphasized by crypto media. All but the most radical bears, like Nouriel Roubini, receive any media attention whatsoever while more moderate skeptics are largely ignored.<\/p>\n

2) Cryptocurrency is a tulip mania<\/h2>\n

Two historical bubbles are often likened to the crypto markets. The Dutch tulip mania of the 17th century and the U.S. internet tech-stock bubble of the late 1990s.<\/p>\n

The Dutch tulip mania was a period where prices for bulbs of fashionable tulips skyrocketed internationally and then dramatically collapsed. Historians consider the event the first recorded speculative bubble.<\/p>\n

At its peak, some tulip bulbs sold for more than 10 times the annual income of a skilled craftsworker. The modern equivalent<\/a> would be as if a collectible was worth half a million dollars. According to critics, the tulip mania and Bitcoin have much in common, with critics alleging neither provide \u201creal value.\u201d<\/p>\n

Oftentimes, hard-line skeptics assert that the price appreciation of Bitcoin depends on the Greater Fool Theory<\/a>, where prices increase not based on growing utility but on the expectation that it can be resold to another \u2018fool\u2019 at a higher price.<\/p>\n

Warren Buffett expresses<\/a> this view for both gold and Bitcoin. Bitcoin is an \u201cunproductive asset\u201d that does not fit into his value investment thesis<\/a>. Others, like Nouriel Roubini, claim Bitcoin doesn\u2019t make any economic sense whatsoever, that it can\u2019t work, and that its value will go to zero.<\/p>\n

Several theories are used to justify why Bitcoin will implode, varying from unsustainable energy consumption from mining, system-breaking volatility, and lack of uptake as a medium-of-exchange.<\/p>\n

\u201cBitcoin\u2014or any cryptocurrencies\u2014should be a serviceable unit of account, means of payments, and a stable store of value. It is none of those things,\u201d said Nouriel Roubini in a written testimony<\/a> to the U.S. Senate. \u201cNo one prices anything in Bitcoin. Few retailers accept it. And it is a poor store of value, because its price can fluctuate by 20-30 percent in a single day. And since its price has been so unstable or volatile almost no merchant will ever use it as a means of payment.\u201d<\/p><\/blockquote>\n

Like the tulip mania, Roubini is convinced Bitcoin has \u201cno value\u201d and that its price is artificially driven by speculation and charlatans. This is the \u201cstupid\u201d bubble stance, according to Wilcox.<\/p>\n

Although Bitcoin certainly has its flaws, and some criticisms\u2014such as difficulties scaling\u2014are justified, there is also a meaningful amount of evidence supporting the idea that BTC sees real use and provides legitimate value. Mining is likely sustainable<\/a> (so long as Bitcoin retains meaningful market share), BTC is an innovation for large international settlements<\/a>, and the crypto asset is a promising censorship-resistant store-of-value<\/a>.<\/p>\n

Subscribe to CryptoSlate Research<\/a> for our next edition covering Bitcoin\u2019s fundamental value proposition and evidence supporting this stance.<\/p>\n

3) Blockchain is the second dotcom bubble<\/h2>\n

The dotcom bubble was a period in the U.S. equities market where technology stock prices, fueled by speculation around the then-nascent internet, caused the Nasdaq index to more than quadruple in five years.<\/p>\n

In 2001, the bubble burst. Its collapse shook the stock market and purged many of the companies that raised at ridiculous valuations. Blue-chip<\/a> stocks like Intel, Cisco, and Oracle lost more than 80 percent of their value. It was 15 years before the Nasdaq returned to its former peak.<\/p>\n

Amazon is the often cited comparison in the crypto-sphere. AMZN peaked in late 1999 at $90 a share. Two years later when the bubble burst it briefly traded at $6 a share. It wasn\u2019t until 2007 that the stock broke old highs, with a single share of Amazon now priced at $1,988.<\/p>\n

Tech-minded influencers and several venture capitalists\u2014like Dan Hedl, Dovey Wan<\/a>, and Erik Voorhees<\/a>\u2014seem to share this outlook on the market.<\/p>\n

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11\/ In an analogous vein, the dotcom bubble was an extinction event that wiped out exuberant companies, but fundamentally sound ideas survived, a large variety of which are to be found today (ex: Amazon).<\/p>\n

— Dan Hedl (@danheld) January 23, 2019<\/a><\/p><\/blockquote>\n