Bitcoin and the .com Bubble

Mark Cuban tweeted some interesting insights on Bitcoin and alt coins the other day. I think his viewpoints help put all this madness into perspective.

Mark Cuban @mcuban

Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think btc, eth , a few others will be analogous to those that were built during the dot-com era, survived the bubble bursting and thrived, like AMZN, EBay, and Priceline. Many won’t

Mark Cuban @mcuban

Along the way MANY fortunes will be made and LOST and we find out who has the stomach to HODL and who doesn’t. My advice ? Learn how to hedge.

Mark Cuban @mcuban

As during the dot-com bubble “the experts” try to justify whatever the pricing of the day is. Crypto , much like gold , is a supply and demand driven All the narratives about debasement, fiat, etc are just sales pitches. The biggest sales pitch is scarcity vs demand. That’s it

First, we need a little bit of context.

I wrote an article on my personal brand site a few weeks ago about some of the downsides of Bitcoin. In case you still don’t understand anything about Bitcoin, here is the TLDR version.

1. Bitcoin has no real world value. - You can’t eat it, you can’t make jewelry out of it, or do anything with it at all.

2. It’s not really about decentralization if you don’t use it. - Bitcoin has no centralized structure and the “Bitcoin bros” love to talk about this, yet it’s a moot point because no one uses Bitcoin in day to day life.

3. People are going to lose a ton of money investing in Bitcoin. - Just like all “hot” markets, Bitcoin will eventually crash and rookie investors who tried to time the market will lose fortunes.

What we have here is a group of (mostly) young people, attempting to create an online currency that has no centralization or regulating bodies. As society hypes up the currency, the speculative value of the currency increases.

This also inflates some of the other alt coins, and as the prices of those coins increases, so does the perceived value.

But the thing is, there is no intrinsic value behind these coins outside of speculation. At least not yet. For now, everyone who is buying Bitcoin is doing so to hedge against the dollar in the fear that the stimulus packages are going to inflate the dollar and decrease it’s purchasing power.

But the logic behind the dollar losing it’s purchasing power by multiple figures is unjustified. The dollar will be fine. There may be some rough days ahead, but the American dollar will continue to be the baseline currency of the world.

The writing is on the wall. The crypto bubbles are going to burst.

When they do, hundreds of millions of dollars will evaporate. Almost all of the money will be the savings and side income of people that tried to ride the crypto wave.

It’s a recipe for disaster. But, it’s a necessary moment for the lifespan of crypto currencies.

When the bubble bursts, I think we will see the crypto currencies that have enough foundational value behind them be able to weather the storm. The two obvious choices are Bitcoin and Ether.

They both serve slightly different purposes, but after the bubble collapses, it’s easy to see how these two coins could become the emerging crypto currencies that might eventually bring digital currency into the public lexicon of everyday life.

So to bring it back to Mark Cuban’s point, the only speculation that truly matters is supply and demand. As new alt coins continuously flood the market, the supply will increase, the demand will decrease and the bubble will expand.

However, once the bubble burst, the two coins that will have the most demand will be Bitcoin and Ether. At that point, I think we will see the value of Bitcoin continue to grow exponentially as it works itself into every day conversation and use.

Until then, it’s going to be a wild ride.

P.S. - This should be obvious but I’m not a financial advisor and I have no clue what I’m doing. Don’t take my words as investment advice at all.