
On the Looming Bitcoin Bubble - simonebrunozzi
https://prestonbyrne.com/2019/05/03/on-the-looming-bitcoin-bubble/
======
drcode
I like Preston- It's always good to have thoughtful, polite crypto skeptics
around. However, I think by any objective measure his predictions haven't
proven to be very accurate.

For instance, he congratulates himself on predicting a Bitcoin price collapse
in his September 2017 essay, which is a time at which the price was only
$3000, far less than half of what it is now. (His thoughts on the ICO madness
fared better)

That said, he is right that the Tether/Bitfinex situation is relevant to the
current price runup, though the fact that tether has only about 2% the total
market cap of Bitcoin needs to be also taken into account.

~~~
empath75
It’s the volume not market cap that matters. Market cap is a bullshit metric
for cryptocurrencies. If I issue a million tokens and sell you one for a
dollar, I’ve created a million dollar coin instantly in terms of market cap.

~~~
drcode
I can see your argument... But would you agree that if the tether folks
tomorrow say "Sorry, we're bankrupt, your tethers are worthless now LOLZ" that
a max of 2.8 billion dollars would be lost by tether holders, i.e. equivalent
to the market cap of tether? (I mean, you can go down the road of arguing that
losses could be greater than that due exotic leverage and/or derivatives
trading techniques that enter into this and allow for greater losses, but that
seems a bit specious)

~~~
empath75
Depends how much of the volume of bitcoin trading is done on tether exchanges
and how real that volume is.

------
csomar
This article doesn't help itself by showing a bias against crypto and
particular exchanges.

A few things:

\- The scales of the first bitcoin bubble and the last one are very different.
The last one created, literally, billions of value for the holders.

\- A defunct bitcoin exchange can not "create" billion of dollars of wealth.
That does not make any sense. People who bought early and sold when the price
appreciated didn't make money from an exchange who went bankrupt but from
people who bought higher.

\- Bitfinex seems to be doing fine from a price perspective. The premium is
gone. The AG doesn't seem to be interested in driving them out of business but
rather regulating them.

\- The era of the single exchange is gone. Bitfinex is a key player but there
is no player holding the whole market. There is also an active off-line
trading market.

\- A bubble is usually the result of a FOMO-consumer market.

Some people are going to hate crypto and that's fine. But my guess is that
crypto will stay here for longer and will mint more millionaires.

~~~
dmitriid
> The last one created, literally, billions of value for the holders.

What it literally created was billions of _vapor_ for the holders because
~100% of that “value” was entirely make-belief.

~~~
jpkiser
In no doubt are consumers expectations of cryptocurrency market adoption
wildly over speculated but make believe? People who invest is cryptocurrencies
are in essence shorting the current global financial system.

~~~
dmitriid
Short:

sell (stocks or other securities or commodities) in advance of acquiring them,
with the aim of making a profit when the price falls.

——

In what way exactly is bitcoin helping to “short global financial system”?

~~~
arbol
Widespread "belief" in currencies other than those tied to national
institutions leads to weakening of the nation state and therefore the current
global financial system.

~~~
dmitriid
[https://news.ycombinator.com/item?id=19896697](https://news.ycombinator.com/item?id=19896697)

And yeah. No amount of belief can make bitcoin into a viable currency.

~~~
arbol
[https://www.forbes.com/sites/billybambrough/2019/05/15/a-u-s...](https://www.forbes.com/sites/billybambrough/2019/05/15/a-u-
s-congressman-is-so-scared-of-bitcoin-and-crypto-he-wants-it-
banned/#152f712e6405)

------
kemonocode
These articles come in like clockwork every time Bitcoin's price moves upwards
(or downwards, or plateaus... you get it) to the point I'd take all of them
with a truckload of salt.

It's been over 10 years since Bitcoin came out and it's still here. It'll
still be here long after most loud detractors (and supporters, for the matter)
have moved on, whether it's $1 or $1 million per BTC.

~~~
chrisco255
It definitely will never go to $1 again. This would imply trivial rewards for
miners and would destroy the network's security. A lot of people don't realize
that Bitcoin is as much about incentives and game theory-based security as it
is blockchain technology.

~~~
idlewords
What in your opinion is the mechanism that puts a floor on the price of
bitcoin? Where is that floor, roughly?

~~~
chrisco255
Since BTC's security is dependent on hashing power, and you need money to
purchase hashing power and run mining machines, the floor must be high enough
that rogue parties cannot easily perform 51% attacks. If the price were to dip
to say, $100, then the incentives for miners to mine for new coin would
dissipate along with it. It would cost more to mine a coin than a coin sells
for on the market. Presumably, network hashing power would drop until
profitability was met. Problem is, since all that idle hashing power would
exist, there would be a feasible attack vector to take down BTC. I can't
venture to guess where that imaginary floor is without some in depth research
and analysis, but I would guess it's got to be at least $1K if not higher. And
it will continue to rise as the network gets more valuable.

~~~
solveit
That doesn't mean that BTC can't go to $1, it just means that BTC will die if
it does go to $1.

~~~
chrisco255
Right. OP predicted it would be around whether at $1 or $1M and this is no
longer possible. The chain would die if it ever falls below a cheap attack
price.

But, that's part of the reason holders have a vested interest in holding, and
thus available supply on the market is restricted, and the price remains high.
Game theory keeps the chain alive.

------
seibelj
FYI Preston Byrne is a longtime blockchain skeptic that crypto bears love to
post. He made a big statement that $100 Ethereum was some sort of death knell
to the cryptocurrency space, and it's at $185 currently.[0]

No one knows if crypto is going up, down, or sideways. But he does make
cryptocurrency haters feel good inside.

[0] [https://prestonbyrne.com/2018/09/08/100-ether-
revisited/](https://prestonbyrne.com/2018/09/08/100-ether-revisited/)

~~~
inflatableDodo
I am in the weird position of being bullish on cryptocurrency, but bearish on
all the existing ones.

~~~
p1necone
Seems fair, most (all?) of the big ones currently have technical issues
severely limiting transaction volume/latency/throughput right?

------
apo
> I haven’t made any predictions for awhile (seeing as my Bear Case for Crypto
> is playing out more or less exactly as described), but I will sound a
> warning today.

The bear case article the author links to spends 2/3 of its effort railing
against Ethereum and ICOs. It's doesn't even lay out a proper bull case for
Bitcoin itself. Instead it sets up a few Bitcoin-will-replace-the-state
strawmen.

Bitcoin has a long history of being dismissed by those who don't understand it
economically, technically, or both. The new article adds little to the
discussion.

------
dnprock
Bitcoin is a strange animal. It exhibits many traits of a Black Swan (an event
that comes as a surprise, has a major effect, and is often inappropriately
rationalized after the fact with the benefit of hindsight.)

The switch to believe in its value happens suddenly in many people. It is
difficult to make sense out out of its price movements. I am skeptical of any
advice trying to rationalize its price movements.

Do your own diligence on how it works, your risk tolerance and stay long.

------
anm89
The great thing about publicly traded things with active markets is that if
you have have real insight into their underlying structures and values that
other people don't understand, you have an immense ability to personally
profit. Anyone rambling online about how it's going to the moon, or it's a
scam, or it's going to collapse are trying to affect sentiment not convey some
deep understanding they already have.

If they really were confident in their predictions they'd have every incentive
to sit there quietly and become wealthy.

------
simias
As long as BTC doesn't have any practical real-world use besides buying drugs
and speculation I don't see how anybody couldn't see the sudden spike in the
exchange rate as a huge red flag. You're effectively buying into a pyramid
scheme: you bet that there'll be enough people who will enter after you for
you to make some money.

It shows that all those revolutionary blockchain projects over the past few
years have amounted to basically nothing, the killer app still isn't there and
BTC is as wild as ever.

~~~
fjsolwmv
You are describing a bubble, not a pyramid scheme. A pyramid scheme uses N
people to pay for 1, and collapses when the supply of people runs out. There's
no imagination that something's value is constantly increasing. A bubble uses
one person paying extra to pay one other person, and collapses when people
stop believing that there is a richer sucker.

------
greenstork
It's odd that Mr. Byrne doesn't mention the ICO craze at all in contributing
to the 2017 bull run in this post. "ICOs and token sales became popular in
2017...By the end of 2017, ICOs had raised almost 40 times as much capital as
they had raised in 2016..."
[https://en.wikipedia.org/wiki/Initial_coin_offering](https://en.wikipedia.org/wiki/Initial_coin_offering)

------
kristianp
This article makes perfect sense to me, and doesn't display an anti-bitcoin
bias. What he is saying is that you should look at for warning signs at an
exchange, such as a halt of USD withdrawals (in the case of MtGox) or the
suspicions around Bitfinex and tether, and treat that exchange as unsafe. Back
when MtGox was operating without USD withdrawals, it was still the most
talked-about exchange, and many people kept putting their money into it, and
didn't withdraw bitcoin from it into their own wallets.

------
granaldo
Bad news after bad news and after bad news

\- Tether Bitfinex mess

\- Binance hack of over $400m worth of bitcoin

And today we witness cryptocurrency price surging all over the board, with
bitcoin hitting $7000.

[https://www.coingecko.com/en](https://www.coingecko.com/en)

bitcoin sees a $1000 increase in 2 days.

yes thread lightly everyone, what goes up must come down eventually

~~~
htormey
Binance hack was 44 million (7000 * current btc price) not 400 million, right?

[https://www.ccn.com/stolen-bitcoin-moved-spiders-web-
binance...](https://www.ccn.com/stolen-bitcoin-moved-spiders-web-binance-
wallets)

~~~
mthoms
It's worth noting they have an emergency fund set aside for this purpose.
Every penny lost is said to be covered.

Time will tell if that holds true of course.

Personally, I think their professional handling of the hack is partially
responsible for the recent surge in investor confidence.

Hacks will happen. Binance is far from perfect. But the way they prepared for,
and handled the hack is to be commended IMHO.

[https://www.binance.com/en/support/articles/360028031711](https://www.binance.com/en/support/articles/360028031711)
[https://www.binance.com/en/blog/333497959022997504/Binance-S...](https://www.binance.com/en/blog/333497959022997504/Binance-
Security-Incident-Update-2) [https://www.binance.vision/glossary/secure-asset-
fund-for-us...](https://www.binance.vision/glossary/secure-asset-fund-for-
users)

------
optimiz3
Article missed that Binance wad recently hacked for around 7000 BTC, and
likely has to be covering which would drive up prices.

~~~
mthoms
It's my understanding that the contingency fund was held in a cold wallet
consisting entirely of BTC. If true, then that couldn't be the reason for the
surge (but who knows).

------
KasianFranks
Give it up. The sky albready fell.

------
b_tterc_p
In a world where crypto is everywhere, I think a lot more people would be into
physical crime. You have no recourse to having everything stolen and the funds
are harder to track.

------
algaeontoast
We need more people like Preston in the space, more importantly people who can
speak simply and plainly about both technical and game-theoretic aspects of
blockchain projects.

As a supporter of the technology and more recently less so of the community
that shamelessly keeps making outlandish predatory claims it still blows me
away that HODL'ers can still be found on HN...

