
Bitcoin Bubble Makes Dot-Com Look Rational - mfrw
https://www.bloomberg.com/gadfly/articles/2017-11-27/bitcoin-crash-may-take-a-while-longer
======
0bsidian
The idea that you can value bitcoin via P/E, utilizing mining fees as the "E"
is incorrect. It's akin to valuing gold through P/E, by utilising the cost of
extraction as the "E".

This is obviously wrong because holding gold doesn't entitle the bearer to a
portion of those mining costs, same with Bitcoin.

The reality is that gold cannot be objectively valued because it doesn't have
an objective value (beyond its industrial use, which accounts for less than
10% of its actual current price).

As a society, we collectively agree that gold is worth something because we
agree that it is worth something.

With Bitcoin, we are doing the same. But if we had centuries to consolidate
our appreciation of gold, we are compressing price discovery for Bitcoin in
just a few years.

Interestingly, Bitcoin offers several improvements over gold (being digital,
lightweight, cheap to move, proven limited supply). It also has drawbacks.

Lastly: the author's contention that you can take value away from Bitcoin by
just copying its code is misguided. It would be akin to saying that you can
replicate Facebook's valuation by copying its codebase. Facebook's value comes
from its network. The same happens with Bitcoin, since its fundamental
properties (censorship-resistance, security) are functions of network size and
node-dispersion.

~~~
Nursie
You remember that there were other social networks before facebook dominated
everything, right? Network effect _now_ is no guarantor of the future.

~~~
kss238
That doesn't mean Facebook is overvalued though. Just because it's value could
disappear doesn't mean it has no value.

~~~
Nursie
It doesn't mean BTC is overvalued either. But BTC could well prove to be
cyrptocurrency's Friends Reunited or Bebo.

------
tobyhinloopen
The idea is great, but in reality these stupid crypto coins are practically
useless and wasting HUGE amounts of resources.

Bitcoin is said to be consuming as much power a some countries, and still
rising fast, while the amount of transactions is comically low compared to the
power consumption.

Bitcoin in its current state can never be a thing to actually buy something
with. I don't see any other long-term use for bitcoin than just making a
couple of bucks before it eventually crashes down like the Hindenburg.

I'm not saying that all cryptocoins will suffer that fate, but I truly believe
bitcoin specifically will.

~~~
charlesdm
It's (looking like it's turning out to become) digital gold. When is the last
time you bought a family dinner with gold?

~~~
criddell
I wonder how the environmental impact of mining gold compares to mining
bitcoin?

~~~
bmking
Pollution from Gold mining: [https://sciencing.com/types-pollution-generated-
gold-mining-...](https://sciencing.com/types-pollution-generated-gold-
mining-22598.html)

A very rough estimate: World wide Bitcoin mining operation spends per year
around 60% as much electricity as all of USA's bank offices:
[https://news.ycombinator.com/item?id=15615601](https://news.ycombinator.com/item?id=15615601)

With Bitcoin mining there is a high incentive to actually use renewable energy
sources and could be physically outsourced to places where building green
power plants is otherwise not practical due to the limits of creating a power
grid to make such a power plant profitable.

~~~
cjbenedikt
[https://www.hydrominer.org/](https://www.hydrominer.org/)

------
charlesdm
I don't get this. The dot-com bubble ran up to $6.7tn in market cap, in 2000,
before crashing down to $1.7tn.

The crypto space, which seems to be shaping into an entirely new asset class,
has a $300bn valuation. That's less than the value of Facebook.

The only reason why people are shouting bubble is because people were able to
get in from the start, when these coins were 10 cents on the dollar. But when
Facebook IPOed after 10ish years, it had a valuation of $50bn. But early angel
investors also got in at 10 cents on the dollar.

It could eventually become a bubble, but I don't think think we're even nearly
there yet.

~~~
beaconstudios
also the fact that 99% of bitcoin's value is tied up in financial speculation
rather than real world use cases, and the remaining 1% is drug dealing.

~~~
charlesdm
Gold has close to no use cases (80%+ is store of wealth) and seems to be doing
fine at an $8tn global market cap.

Of the potential 21m Bitcoin in existence, 4m are assumed to have been
permanently lose. 16m have been mined. That leaves 1m coins left to be
acquired in the future.

~~~
pc86
Is there a timeframe for how long it will take for those 1m coins to be mined?
Is it equally likely that the price craters or skyrockets once that happens?

~~~
charlesdm
I think the price will skyrocket anyway, because there is a limited supply. In
a way, I believe it could be like an epic short squeeze. You have people
wanting to buy in (retail + institutional money is coming in) over the next
few years.

If you take the example of oil -- once the price of a barrel goes over a
certain threshold price, you'll go and explore new wells that were previously
not profitable. And you will eventually get more supply after a while. That's
just not the case with Bitcoin (and probably Ethereum after next year).

------
f_allwein
Old saying: "What's common in every bubble is the belief that this time, it
will be different." -> if you invest in cryptocurrencies, make sure not to
invest more than you can comfortably lose (probably a few percent of your
overall funds).

~~~
drcode
Oh, but the naysayers in the media who have predicted bitcoin's collapse every
month for years and have been wrong every time are of course given a free pass
and are allowed to say "this time it's different" once again.

~~~
boyce
I think this is clearly not equivalent

At the moment it feels like a parent warning a child - at some point you have
to decide to step back and let them learn the painful lesson for themselves

------
pmorici
Calculating a P/E on transaction fees seems silly because frees on a crypto
currency aren't related to the amount of value moved they are related to the
number of bytes of space your transaction takes which in a simple transaction
is most effected by the number of source and destination addresses used in the
transaction.

A better way to calculate this fake P/E ratio would be to look at the total
USD volume of Bitcoin transactions and take 2% of that as the "earnings" logic
being that if a coin were a credit card like company their earnings would be
2% of thier transaction volume. Still a bit of a contrived metric but at least
related to the economic activity taking place.

------
csomar
> Take dot-com stocks, which were the biggest bubble of the past few decades,
> and likely the largest in stock market history. At the height of the dot-com
> stock bubble, the technology-heavy Nasdaq stock index had a price-to-
> earnings ratio of 175. In the past year, bitcoins have generated transaction
> fees of nearly $219 million. And at $9,600 a piece, the total value of all
> bitcoins -- their market cap -- now tops $155 billion. That gives bitcoins
> the equivalent of a trailing P/E ratio of 708.

What kind of logic is that? Holding bitcoin doesn't give you any earnings. In
fact, you need to spend electricity and equipment if you want to collect those
fees.

Apples and Oranges.

~~~
dmichulke
> What kind of logic is that? Holding bitcoin doesn't give you any earnings.

Well, holding USD gives you inflation (i.e., negative interest).

Holding BTC doesn't (assuming the 21 mn are already priced in).

~~~
csomar
Eh, nope. That's not how it works.

Holding 1 USD will give you 1 USD after 1 year.

Holding 1 Bitcoin will give you 1 Bitcoin after 1 year.

You are confusing the unit you are holding with the value "vs" another unit.
That depends on the market and the external factors (like inflation, interest
rates, etc...)

But holding 1 Unit will always give you 1 Unit of whatever you are holding.

~~~
dmichulke
You are deflecting to a problem of definition ;)

Yes, you have the same amount but no it doesn't purchase as much as it did one
year ago. Units of accounting only make sense within a context of other units
of account.

A dollar by itself is just a piece of paper if you cannot buy an amount of
wheat, water or square meters with it.

And by that measure the dollar is losing value vs a bitcoin.

~~~
csomar
So? You just repeated what I said. My original comment was debunking the
Bloomberg article.

When you hold 1 Stock, at the end of the year you get a dividend. You divide
the dividend by the stock to get the P/E ratio.

That's not the same with USD or BTC. Its value fluctuates but it generates no
income on its own.

~~~
dmichulke
I think I misunderstood the intention for your first comment, probably by
interpreting it in the context of another comment that was nearby but not
related at all. Sorry

------
drcode
The news media have posted stories predicting Bitcoin's collapse pretty much
every month since 2012... but I'm glad that once again they're sharing some
morsels of their expert insight with us peons on why Bitcoin is overvalued.

------
jpatokal
Attempting price/earnings analysis here is not sensible, because bitcoin is
not a stock: simply owning some doesn't earn you any "dividends" (mining
rewards).

A better parallel is gold, which is a store of value that produces nothing of
value for its owners, but is valuable because the supply is limited and
there's a collective belief that this shiny metal is worth much more than its
practical uses.

Bitcoin is going up because of those same properties. If supply ever becomes
unlimited (say, there's a critical bug found), or its investors lose faith, it
will crash.

~~~
Tepix
For the Casper update of Ethereum with proof of stake, this may turn into a
useful metric. You can use your ETH to participate in the PoS lottery and thus
earn ETH (a kind of dividend).

------
cup-of-tea
Ultimately this will come down to what value Bitcoin really has to society.

An investment is when you work to receive something you don't want, but that
you think other people will want in the future so that you can exchange it for
things you do want. If you work for money then you do investment. By working
for money you are betting that when you need food at the end of the week the
shopkeeper will take your money.

Investing in other things is no different. You make a bet that people in the
future will want to trade the thing you buy for things that you want at that
point. For example, you could buy a small amount of gold every month and when
you are ready to retire buy an annuity with the gold. That's if anyone
actually wants the gold in 30 year's time. If they don't then you'll have to
eat the gold.

People often say that cash is a bad investment, but actually it's really great
as long as you plan to spend it soon. What they mean is it's not a good long
term investment, of course. But cash stays valuable because unlike other
things you can exchange it for things you want almost immediately. Bitcoin is
now not like cash because of the high transaction fees. So it now competes
with things like gold. So you have to ask yourself: what do you think will
still be valuable in 10, 20, 30 years time? Gold? Bitcoin? If Bitcoin isn't a
yes for enough people, then it's a bubble.

------
decentralised
I think you are making a mistake by only looking at cryptos as "coins".

There are businesses being run on and around public blockchains and the
cryptoeconomic incentives will ensure the perpetuation of the network. As long
as there is value in maintaining public blockchains, their tokens (BTC, BCH,
ETH, etc) will hold monetary value.

[https://i.imgur.com/AfGNEA5.jpg](https://i.imgur.com/AfGNEA5.jpg)

------
DINKDINK
Was the collapse of the German Deutsche Mark, the Zimbabwean Dollar, the
Venezuelan Bollivar a bubble too? Good money drives bad money out, so I’d
argue that no, Bitcoin’s price is not a bubble. Clearly there’s no price that
bitcoin holders will sell at so they’re clearly exiting the USD ecosystem.

I think the logical fallacy that’s occuring right now with critics of
bitcoin’s price rise is that all bubbles has dramatic price rises (Pets.com,
endless bullshit dot com IPOs, housing bubble) but not all dramatic price
rises are bubbles (currency collapses)

Because bitcoin is measurable scarcity one can provable show it’s a good store
of wealth.

OTOH, the ICO binge is an apt analogy for the IPO craze of the 90s. Investors
are buying up securities with no viable business model expecting returns which
isn’t going to happen on software that anyone can copy and run themselves. It
doesn’t take a $200 million raise for a few engineers to build an MVP. It does
take $200 million to run a successful Ponzi scheme (ICOs are probably not
scarce and are therefore improper stores of wealth)

~~~
shp0ngle
Bitcoin has scarcity, but so does Litecoin or Bitcoin Cash

What makes Bitcoin special?

~~~
kwikiel
Network effect - same thing for Facebook. The more valuable bitcoin is the
more secure and more resilient. Thus purely by price appreciation bitcoin is
doing hiperbitcoinization - once people realize that fundamental value of fiat
currency is a myth, more fiat currencies will collapse

~~~
0bsidian
This is exactly right.

If you create a company and copy Facebook's code, the resulting company will
not be worth as much as Facebook.

Why? Because much of Facebooks' valuation derives from its network.

Bitcoin is the same.

~~~
notahacker
The problem with being _by design_ a fungible commodity is that your network
lock-in isn't anywhere near as strong as Facebook's. Or AOL's...

------
NicoJuicy
I just went out after a long time. Banks are coming in and i don't trust them.
They are smarter then me. I took out my profits and i'm doing stocks since a
1/2th year, i'm focusing on that now.

Here my reasoning:

1) BTC takes too long to make a transaction ( 2,5 hours) which make me kinda
doubt the use case.

2) the enterprise is adopting the blockchain, which is irrelevant to bitcoin.
If they would do crypto, they will create their own coin.

3) the guy further in the street is also buying crypto ( not in IT). Which for
me, is a sign of a bubble. He knows nothing about the tech. It won't ever be
used for the original porpose at this valuation.

4) First time adopters are going out now @ 10 k., check out reddit:
[https://www.reddit.com/r/Bitcoin/](https://www.reddit.com/r/Bitcoin/)

5) The HODL meme is currently blocking the bubble to burst. Some people are
willing to HODL even when 75% fades away. PS. Banks won't adopt the HODL meme
:)

I have second doubts though, it truelly is an amazing tech.

------
chrisco255
P/E is a nonsensical measure for currency and assets. No one holding BTC
expects to earn transaction fees. The miners get those fees. If we're talking
about market cap of the miners themselves then this would be useful.
Otherwise, the value of BTC should go up the smaller the transaction fees
become. Why? Because less value is lost in transmission.

------
matte_black
My only resentment toward Bitcoin is that if I had gotten in early enough
there could have been some easy money to be made, but only because I believe
in the Greater Fools theory, not because I actually believe in Bitcoin as a
currency.

~~~
scotty79
I never believed bitcoin as a currency same way I don't believe gold or art as
a currency.

But bitcoin for me is something like art or gold (scarce, durable) easily,
securely transferable to anyone on the planet within less than a day without
the need for any third party.

That's bound to be worth something.

------
liaukovv
How do you quantify what p/e of a US dollar is? Doesn't make much sense to me

------
IanCal
Is price compared to transaction fees really a good measure?

Holding them doesn't mean you get the transaction fees, and increasing
transaction fees would lower the 'P/E' but make bitcoins obviously worse to
have or use.

------
singold
AFAICT transaction fees aren't the reason someone "invests" or buys bitcoin,
if you buy bitcoin you don't get a fraction of those fees. If you want that
you should invest in mining, so I think the initial part of the analysis is
flawled.

The second part looks like nothing to say, backed by a lot of non sensical
numbers, but I'm not a native english speaker and also generally don't read
nor like economic "analysis", so I may be wrong

~~~
Tepix
The high transaction fees and long transaction delays are turning into a
reason why people are starting to question bitcoin.

------
TheCoelacanth
This article seems to be making the assumption that price-to-rent, price-to-
earnings and price-to-transaction-fees ratios should all naturally converge to
the same amount.

I don't see any plausible justification for this assumption, in fact it seems
like it is trivially disproved. The US dollar has no transaction fees, so it's
price-to-transaction-fee ratio is infinite. This whole article is based on a
false premise.

------
martinko
> bitcoins have generated transaction fees of nearly $219 million. And at
> $9,600 a piece, the total value of all bitcoins -- their market cap -- now
> tops $155 billion. That gives bitcoins the equivalent of a trailing P/E
> ratio of 708.

Absurdly idiotic analogy, as holding the underlying is in no way related to
the revenues that miners earn.

------
nabla9
Finally an article that gives some numbers to quantify Bitcoin market.
Transaction fees as P/E analogy seems wrong.

------
pmorici
Here is a chart of transaction volume on several of the major crypto
currencies...

[https://bitinfocharts.com/comparison/transactions-btc-eth-
bc...](https://bitinfocharts.com/comparison/transactions-btc-eth-bch-xmr.html)

Anyone see a trend...

~~~
Tepix
Yup. Bitcoin transactions have stagnated for the last year or so.

[https://bitinfocharts.com/comparison/transactions-btc-eth-
bc...](https://bitinfocharts.com/comparison/transactions-btc-eth-bch-
xmr.html#1y)

~~~
nuclx
Might be due to the fact that the amount of transactions is capped.

~~~
pmorici
Thought experiment; Would Apple be as valuable as it is today if it decided
that it should cap iPhone production at 1,000 units a month?

------
rejschaap
Bitcoin could hit $10.000 any moment now. Who is buying and why?

~~~
empath75
If you go to bitcoinity and check the price of bitcoin, the first exchange
they list is bitfinex. The price they list is in USD. That’s actually wrong.
There are no dollars on bitfinex. They use a currency called tethers which
they claim is backed 1-1 by dollars but almost certainly isn’t. They’ve
created close to a billion dollars worth of that token during this run up.

Rumor has it that they’re using those tethers to buy btc on their own exchange
and manipulate the price.

Once people realize those tethers are worthless and they can’t withdraw
dollars, they’ll start using them to buy btc at any price and withdraw them on
the exchange causing a massive run up in btc price as they make a run on the
bank. It’s not really an increase in btc price but hyperinflation of tethers.

~~~
pc86
> _They use a currency called tethers which they claim is backed 1-1 by
> dollars_

Didn't they just recently say they're not backed 1-1 by USD?

------
bufferoverflow
Dot-com bubble lost $1.7 trillion when it popped. All cryptocurrencies
combined are like $300 billion, and they will definitely not go to zero
if/when it pops.

------
y04nn
People should not see cryptocrruencies as a stock market, you should not
expect any ROI, it's not a placement.

Cryptocrruencies (for me) are meant to be used, exchanged, a good metric to
value a cryptocrruencie should be the 'cash flow (? exchange of money per unit
of time)'.

Bitcoin is actually inefficient with its high transaction fees.

~~~
davidmurdoch
Transaction fees are about $5-7 USD right now, which for transactions over
$200 makes it cheaper than using a credit card, and definitely cheaper than a
wire.

------
Twisell
41 points 109 comments as of writing one hour after publishing. Look like
bitcoin advocates have specifically vetoed this publication.

This is probably one of the only the downside of crowd moderation. This would
be an interesting phenomenon to investigate if someone have access to HN logs.

------
linards
its going to crash big time, opportunity to buy more

~~~
bhickey
Tulips are on their way back. Let's get in on the ground floor!

~~~
linards
you do not understand bitcoin, and thats ok :)

~~~
bhickey
Not so much. I spent a chunk of 2009-2010 hanging around with British bitcoin
enthusiasts. It was predicated on greater fools then and it still is.

