
Ask HN: How do we know Bitcoin is not in a bubble? - tbirrell
Bitcoin&#x27;s rise has been astronomical in the last year or so. How do we know that this isn&#x27;t a bubble that will bankrupt 95% of its users?
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Avalaxy
It very obviously is. Nothing can grow at such an insane rate and be a stable,
long-lasting thing. No one knows how high it will go, but that it will
collapse hard soon is 100% sure.

~~~
Rmilb
If you are certain it will collapse you can make a lot of money shorting it.
If you are 100% sure, there is no downside.

~~~
soneca
What financial mechanisms exist to short Bitcoin?

~~~
mancerayder
Here's an idea. Ethereum smart contracts to short bitcoin. You borrow my BTC
for 30 days, with a 5% fee. Someone could make a killing off of that idea.

~~~
chrdlu
[https://medium.com/dydxderivatives/introducing-
dydx-2d0f0f32...](https://medium.com/dydxderivatives/introducing-
dydx-2d0f0f326fd)

Note: I'm not affiliated with that project, but I did see them present
yesterday at Token Summit and it looked very interesting!

------
age_bronze
The question should be, what should happen so that it stabilizes. If Bitcoin
and cryptocurrency marker were to stabilize, the competition between different
cryptocurrencies should mean the trade off between their different features
will be directly reflected in the cost to their user. The possible features
are: \- Transaction time (Bitcoin is relatively bad here) \- Transaction fee
(Bitcoin is also one of the worst options here) \- Smart contacts / other
integration features (Bitcoin is going nowhere here) \- Anonymity (Bitcoin
isn't in the best spot here, might have the advantage of being the most
commonly used BUT this is a matter of momentum only). \- Resistance to attacks
from large groups of people (Bitcoin's biggest advantage, but again only a
result of it's initial momentum, which might not hold forever).

Now you can also notice that all these features are composite. If you really
want to pay for anonymity, you can tumble though the most anonymous currency.
If you need smart contacts, go through eth. Resistance to nation state attack
is a noble ideological concept, but has low demand, and a cheaper but weaker
coin will be dominant in most scenarios.

You will also know a market is stabilized when there no incentives to create
competition without innovating. There's nothing stopping you from creating yet
another crypto coin, which will have better transaction fee and will still be
as decent as others.

Anyway you can clearly tell the market is clueless when the talk isn't about
which coins gives you the best features for the most cheap price, but instead
about which coin rises the most (which is usually exactly the opposite).

------
captainmuon
You can't know. For those who are saying it is obviously a bubble: If bitcoin
"succeeds" and becomes widely used as money, then its value will grow a lot
more, since there can only ever be 21 million bitcoins. It is inherently
deflationary. One bitcoin is worth, roughly (and circularly) speaking, the
total valuation of bitcoin divided by the number of coins. Another way of
looking at it: imagine bitcoins become as widespread, and as desired, as USD.
Now think about how many USD are in circulation compared to BTC.

I know it is not really that simple, and dollars have some special properties
compared to bitcoin: you have to pay your US taxes in USD, for example. Also,
it is easy to talk about "valuation" (in e.g. USD, EUR) if you view bitcoin as
a commodity - but if it becomes a dominant currency it is not so simple. You
can still reason about exchange rates, and my point is, the asymptotic
exchange rate USD:BTC (assuming no dollar inflation) is not of the order of
10000:1, but much higher, maybe 1000000:1.

~~~
rmah
Bitcoin cannot become "widely used money". It is technically impossible. It is
transaction rate limited to 6 txn/sec. Worldwide. Even band-aids such as
increasing the block size won't help enough.

I'm not saying bitcoin prices will crash anytime soon. Simply that the dream
of bitcoin replacing fiat currencies in daily commerce is just that: a dream.

~~~
ericb
It was once __impossible __to stream movies over the internet because modem
technology was limited to 1200 bits per second. Even band-aids like doubling
capacity wouldn 't help enough.

Technically. Impossible.

~~~
take4
Streaming movies was impossible over dial-up, and still is. But you can if you
have different internet connections like DSL, Cable, Fiber, etc.

For the original bitcoin that is currently being priced at $13,000 it is
indeed technically impossible to exceed 6 transactions per second. Sure you
could make a new crypto protocol, but it's not "bitcoin".

~~~
ericb
The protocol (proof of work based system using wallets and addresses) doesn't
define the implementation and the implementation defines limits. The protocol
especially does not define the implementation of other layers built alongside
it, so this is a straw man.

If your argument is "any improvement to the current system" "isn't bitcoin"
then that's a no true scotsman sort of argument and I don't think it holds
much water.

------
eabrams
As a fiat currency, it is almost by definition a bubble. It's fundamental
value is essentially nil, yet it's "price" is positive. In the current
equilibrium, people seem to agree that Bitcoin is a good store of value
(because it is perhaps limited in supply and ownership is verifiable).
Fortunately/unfortunately, other cryptocurrencies are just as useful in this
regard. As such, Bitcoin's value is something of a sunspot equilibrium. Any
sufficiently big shock or event could shift the focus to another
cryptocurrency or other product entirely.

~~~
neilwilson
"It's fundamental value is essentially nil,"

That's not strictly true. It's fundamental value is the effort required to
obtain it - which at the moment is some rather large amount of electricity and
hardware. If you have deployed those resources you will not let the Bitcoins
go for any less in real exchange unless you absolutely have to.

That is the same for anything that is a currency. It's base value is what you
have to do to get it.

The problem with crypto-currencies is that nobody has to hold them to deliver
them anywhere. There is no solid drain other than to savings.

~~~
RyanCavanaugh
You've confused fundamental value with fundamental cost. A hand-knit sweater
will not _necessarily_ (or even _usually_ ) fetch a selling price equal to the
input value of the labor that went into it.

There are many endeavors which produce goods whose market-clearing price is
below the value of effort required to produce them.

~~~
mywittyname
Houses are a good example. When land is plentiful, the cost of a house is
usually a slight discount over what it would cost to build a similar one for
new.

------
gnode
Such price increases may be simply a bubble (possibly a temporary bubble as
we've seen in the past), but they may also be a sudden price adjustment. One
explanation for such a price adjustment is an increase in the number and
wealth of its users. The user base has moved from crypto enthusiasts to
wealthy individuals, and now it seems to institutional investors with bitcoin
futures going ahead. Such a thing didn't exist before 2009, so we don't have
much to go on as far as how valuable it'll be.

Cryptocurrency may not be pinned in value to anything tangible, but is useful
and unique as an asset class for its ability to transfer ownership by virtual
means. You can't store a bar of gold in your memory, and you can't send it
through a computer. I believe its long term value is in how much people want
money that has this property.

Long term, a threat to Bitcoin's value is competing altcoins. Bitcoin is
arguably a bad cryptocurrency at a technical level (high transaction fees,
slow transactions, bad for the environment, etc.), it's difficult to use for
commerce, but seems to be winning out against the others for now, maybe just
by first mover advantage and established network effect.

------
ggg9990
You can't know that it's not a bubble. Maybe it is and crashes tomorrow. Maybe
it is and crashes in a year. Maybe that crash brings it back to fundamentals
but that price is still higher than it is today. If you could perfectly
predict the future you'd be pretty much God.

------
Sol-Savage
I wonder how bitcoin will look in the aftermath of other technological
novelties. Usually, these things start off as a niche novelty of an insular
crowd, then savy people take part, then it goes mainstream and the influx of
traffic forces regulation and more overhead due to demand. The drivers of the
technology leave, then there's a slow burnout time where people try to
maintain the appearence that the tech isn't dying.

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rednerrus
When you look into bitfinexed articles regarding the Tether pump and dump and
wash trading, you would be crazy to think the value of Bitcoin is sustainable.

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soulchild37
This chart might serve as a good indicator :
[http://charts.woobull.com/bitcoin-nvt-
ratio/](http://charts.woobull.com/bitcoin-nvt-ratio/) , similar to stock
market P/E Ratio, it uses NVT Ratio (Network Value to Transactions Ratio).

------
detaro
we don't.

~~~
myst
We even know it is a bubble.

------
zaptheimpaler
We only know bubbles in hindsight. No one can say for certain.

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coryl
It probably is a bubble.

The problem is when it bursts, we don't know if we'll be in better positions
having entered now, or having entered after.

