
Cryptocurrencies are the tulip mania of the 21st century - brakmic
https://devolutionreview.com/bearish-on-bitcoin/
======
stretchwithme
Tulip mania was caused by the government changing futures contracts into
options. The mania happened in these financial instruments, not actual tulip
bulb prices.

[https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes](https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes)

Many bubbles are caused by government actions. Our own housing bubble was
fomented by numerous bad policies.

Bitcoin is not a creature of government but is actively opposed by many of
them.

~~~
mads
But it doesn't mean that the bubble is not there. Governments don't create
bubbles. Human nature does.

~~~
runeks
> Governments don't create bubbles. Human nature does.

And yet, OP just provided evidence of a case where, previously, we assumed a
specific asset bubble was caused by "human nature", but in fact it looks like
it was created through the government inadvertently creating risk-free
speculation in options contracts for this very asset.

------
sboselli
I consider this clickbait at this point. This is the exact same thing that has
been said during every single boom in Bitcoin's history. You may like Bitcoin
or not, but the concepts of cryptocurrencies and the technical development
that the blockchain represents are here to stay. They are being adopted left
and right by the banking sector all around the world.

~~~
mannykannot
And tulips are still being bought and sold. Bubbles tend to have a life of
their own, regardless of the MacGuffin they are organized around.

[https://en.wikipedia.org/wiki/MacGuffin](https://en.wikipedia.org/wiki/MacGuffin)

I don't know about cryptocurrencies in general, but ICOs seem to me to be
mostly foam.

~~~
dnautics
Bubbles also tend to be driven by leveraged investment. See kindleberger.

------
EthanHeilman
Bitcoin has existed for eight years[0] at this point, other cryptocurrencies,
such as litecoin, have existed for six years[1]. Tulip mania was fairly short
lived with its peak lasting only a few months (November to May)[2].

Yes, the hype is overwhelming but I think tulip mania is bad comparison, a
better comparison would be AI winters or tech bubbles.

[0]:
[https://en.wikipedia.org/wiki/Bitcoin](https://en.wikipedia.org/wiki/Bitcoin)

[1]:
[https://en.wikipedia.org/wiki/List_of_cryptocurrencies](https://en.wikipedia.org/wiki/List_of_cryptocurrencies)

[2]:
[https://en.wikipedia.org/wiki/Tulip_mania#History](https://en.wikipedia.org/wiki/Tulip_mania#History)

~~~
ovulator
Tulips had existed for a long time too. Neither tulips nor bitcoin are
worthless, both are/were just extremely over valued. The current surge in
bitcoin pricing has only really started from May of this year.

The last time this happened with bitcoin about 4 years ago the surge only
lasted a couple of months.

~~~
EthanHeilman
Tulip supply is inflationary since tulips create more tulips. Bitcoin is more
similar to the market over Superman #1 than Tulips, as Bitcoin has a known and
fixed supply. However neither Superman #1 nor Tulips are not as liquid or as
difficult to counterfeit as Bitcoin. In fact there has never existed a
collectible as difficult to counterfeit as Bitcoin.

------
random_rr
Tulip references are the tulip mania of the 21st century.

~~~
shakestheclown
Disagree! Tulip references are still a buy for the forseeable future.

~~~
rdiddly
Regardless of whether tulip references are in a bubble, there still remains
intrinsic value in a decentralized system that can transfer a tulip reference
halfway around the world without fees or government interference.

------
jcfrei
Bitcoin certainly has an intrinsic value (because it is a globally accessible
medium of exchange). However just like gold its value is also most likely way
above its intrinsic value. The intrinsic value of gold primarily consists of
industrial applications + jewelry. Compare the price of 1kg of gold to the
price of 1kg of palladium: It's $42k vs $29.5k, although palladium is much
more important for industrial applications and less common in the earth's
crust
([https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth...](https://en.wikipedia.org/wiki/Abundance_of_elements_in_Earth%27s_crust)).
So why does gold have a much higher price? Because people continue to believe
in it as a way to store value. The same thing is happening with bitcoin. As
long as people believe bitcoin will be useful as an asset the price will stay
high. But because of that, bitcoin is a speculative asset just like gold.

~~~
rdiddly
I seem to recall that the Lakota people and specifically Black Elk would refer
to gold as "the yellow metal that drives the wasichus" [white people] "crazy."
They had no use for it whatsoever, so its value to them was 0.

------
jondubois
I was skeptical of Bitcoin when I first heard of it. Now I think that it's
here to stay. I don't think ICOs are a bubble either (not all of them at
least). I think that we need more ICOs to increase the capacity of the
internet of cryptocurrencies.

Digital currencies address a real problem; government and institutional
manipulation of money. Traditionally, everyone has been forced to drink from
the same pond; world governments decided what the economic environment would
be in any given country - Because of this, some generations or specific groups
of people have been set up for failure.

If you're born in a country whose monetary policy or economic environment is
working against you; cryptocurrencies provide an idealistic escape hatch; an
alternative way of valuing your labour and your potential.

The traditional fiat financial system has been corrupted by an army of
traders, venture capitalists, investment bankers, bureaucrats, lobbyists and
corrupt politicians; their actions have damaged the public perception of fiat
currencies and have been devaluing them.

Fiat currencies are no longer seen as the product of meritocracy; but as the
product of luck or corruption.

Regular people are not the ones driving up the price of cryptocurrencies;
they're driven up by rich people who are (perhaps inadvertently) voting
against the same system which made them rich in the first place. Maybe this is
what Karl Marx had in mind when he suggested that capitalism could destroy
itself.

Bitcoin is not a bubble; a true bubble grows until it pops; then it stops
growing. Bitcoin has popped many times in the past and has always recovered.

~~~
sireat
Setting BTC aside for a moment how are ICOs not a bubble?

There is no ICO that has not raised way more money than necessary.

Then you add that most ICOs are little more than a white papers with some
pedigree and you have the makings of a bubble.

------
wslh
The are many many angles to look at cryptocurrencies that make that assertion
not true. For example, beyond the ICO mania, cryptocurrencies make the dream
of a global Kickstarter possible. Many people from developed countries don't
realize how difficult is to have something like this globally.

Another important difference is that part of the community is self sustainable
and doesn't depend on external funding.

~~~
kensai
But the ICO mania is exactly this global Kickstarter you mention. ;)

The main problem with ICOs is that there are not many independent auditing
organisations. I know only of ICOrating, but even this seems inadequate.

~~~
wslh
> The main problem with ICOs is that there are not many independent auditing
> organisations.

That is right but we are talking about a "thing" that is completely new.
Future ICOs will have more due diligence, that is natural and it is unfeasible
that they can continue with just a whitepaper in place. BTW, one sector in my
company works specifically with ICOs and we are working with some real
companies, doing and selling real products, and they plan to launch their ICOs
in the next 6 months.

------
PaulAJ
Today I learned that the tulip mania wasn't real.
[http://press.uchicago.edu/ucp/books/book/chicago/T/bo5414939...](http://press.uchicago.edu/ucp/books/book/chicago/T/bo5414939.html)

------
adventured
Internet companies are the tulip mania of the 21st century. Or at least that's
what I was being told at the start of the 21st century. These people should
get together and settle on _the_ tulip for the 21st century.

As with the Internet company scenario, the tulip forecast short-term is
partially correct. Long-term, as with the Internet, what comes next will be
far, far more valuable and globally so. Blockchain technology will touch,
essentially, every person on the planet. It doesn't matter if the successful
rider is Bitcoin or CoinX, just as it didn't matter if it was Sun Microsystems
or Webvan or Dr Koop.com or Lycos that made the most off the potential of the
Internet.

[http://money.cnn.com/2000/11/09/technology/overview/](http://money.cnn.com/2000/11/09/technology/overview/)

------
kolbe
I thought deep investigation into 'tulip mania' revealed it wasn't nearly as
severe as people claimed. If bitcoin really is worthless, then it would have
an unprecedented place in bubble history.

------
tw1010
We're at the peak of the Gartner's Hype Cycle for comparisons between tulip
mania and bitcoin.

------
rb808
BTC was the one and only crypto currency to exist I'd think it has some value.
However when there are many crypto currencies why does BTC have any value?

Eg if ETH starts being used for most transactions, and BTC started crashing in
value would anyone feel a need to keep it?

~~~
stevenmays
This argument makes no sense. "If the euro exists, why does the dollar have
value?"

Edit: The above is a rhetorical question.

~~~
kaffeemitsahne
If businesscards, party flyers, and other pieces of paper exist, why do dollar
bills have value?

~~~
taw55
Not sure if this is rethorical, but it's a great question. In hacker-news-
pedantry tradition i will answer:

A. A dollar bill represents an accounting entry in a bank account. Banks are
the third party that facilitate trust and the rules by which 2 actors trade.
B. Dollar bills are legal tender for the payment of taxes. They are enforced
by government, which is the sole legal arbiter of coercive action. Taxation
requires every citizen to hold a reserve of state currency. C. Due to the
specialized printing process dollar bills are, at least theoretically, hard to
counterfeit. D. Ubiquity as trading mechanism, barter requires double
coincidence of wants (rare) or interpersonal credit (lack of third party
oversight to guarantee fair play). When holding assets, these can deprecate
(or appreciate) in value, and would need to be converted in cash holdings to
avoid the impracticalities of barter exchange. E. They are an convenient way
of turning digital entries into tangible user objects, since they hardly take
any space.

I'm sure you could keep the list going. Notice how cryptocurrencies satisfy a
lot of those conditions. Also notice how bitcoin in particular fails at a
number of them.

------
Ologn
If we look at all of history up until recent times (let's say until 1971),
currencies were simply commodities with certain properties. The properties
that made a commodity a good currency were portability, uniformity,
divisibility and durability.

Commodities have value because they are useful. A pear is useful because I can
eat it. A shirt is useful because I can wear it. Gold is useful because I can
use it to conduct electricity or have my tooth filled.

Since gold is portable, uniform, divisible and durable, it makes a good
currency too. Up until 1971, people carried around little pieces of paper
(even more portable than gold) redeemable for gold as a kind of currency.

Cryptocoins are worthless. They have no value. The proponents of cryptocoins
cast about the world looking for commodities with value to compare cryptocoins
to and found none.

But then they came across the post-1971 dollar/euro. It is not immediately
clear why these pieces of paper are being used post-1971. Seizing on this
confusion, the cryptocoin advocates point to the one thing in the world they
could find without obvious value and say "we're just like this - but better".

Another gulf of confusion they exploit - they tell us technical people that
this has value for financial reasons we wouldn't understand as technical
people. Then they go to the financial people and tell them this blockchain
technology is too complex for them to understand, but it's valuable. As few
people have a foot in both worlds, it's a gulf for this scam to walk into.

The market cap for Bitcoins, Ethereum, Ripple etc. is $137 billion which is
absurd. Dogecoin is supposed to be worth $100 million despite its creator
coming out and saying it was a joke and this valuation is absurd. Charlie
Munger, Warren Buffett, Jamie Dimon all have noted how Bitcoin is, as Munger
puts it, "rat poison".

I witnessed the subprime mortgage bubble in 2008, the dot-com bubble in 2000,
and now we have another one. Whereas Pets.com or a suburban development had
some value, albeit overinflated, the $130 billion crypto"currency" market cap
is absurd. It is going to crash to near the $0 mark at some point. As Keynes
noted though, markets can remain irrational longer than you and I can remain
solvent.

~~~
taw55
What you describe (money as proxy for commodity) is one school of thought that
is increasingly under attack in academic circles.

See for instance Money by Eric Lonergan; Debt by David Graeber; Money, The
Unauthorized Biography by Felix Martin; Theory Of The Monetary Circuit by
Augusto Graziani; Soft Currency Economics by Warren Mossler; Creating Economic
Order by Michael Hudson; Debt and Economic Renewal in the Ancient Near East by
Michael Hudson.

These argue that accounting systems (and even writing, according to some) grew
out of interpersonal debt/credit relations. Money then grew out of these
accounting systems, as a token representation of the abstract accounting
entries. In this view, money is fundamentally a kind of social contract,
rather than a representation of some stored potential trade-good.

------
valarauca1
Is there innovation in Block Chain? Yes.

Are crypto-currencies over inflated? Yes.

We can see the path from commodity currency, to paper, to fiat was a long and
messy road history makes this clear. While in all likelihood crypto may very
well supplant fiat the likelihood it'll happen in 1-2 generations is slim.

Furthermore if history is a guide the replacement of Fiat by crypto will
likely happen by mistake, or in such a small way few will notice.

~~~
dalanmiller
What are the obstacles to replacing Fiat? I think people underestimate the
combination of payment method and value, but I also just haven't heard a good
argument against.

~~~
valarauca1
Okay here is one: We haven't.

A strong argument can be made the USD (and most the world's curreines) are
backed by oil as oil may only be exchanged for USD.

Furthermore inflation tracks oil sale perfectly since the petro-dollar
started.

------
eaoliver
China is already clamping down on BTC. Wait till the US intelligence agencies
find that it's being used by ISIS (or some other villain du jour) to
fund/support domestic terrorism. When Coinbase and other exchanges are
regulated out of existence and no US-based corporation can legally transact in
BTC, the price of BTC against major currencies will collapse.

Ignoring the price of BTC, I would bet against Bitcoin purely on technical
grounds. If the transaction fee history is correct [1], then it would suggest
that the economic feasibility of Bitcoin as a payment service diminishes as it
scales, and, with a peak mean transaction fee of nearly $9 USD last month, the
blockchain cannot even support its own current popularity.

[1] [https://bitinfocharts.com/comparison/transactionfees-btc-
eth...](https://bitinfocharts.com/comparison/transactionfees-btc-eth-bch-
ltc.html#6m)

------
onewhonknocks
What a fresh, new take on the situation.

*sigh

~~~
Tepix
You were being sarcastic but I agree - it's a new take. The author is saying
crytocurrencies shouldn't be about their valuation, yet that's the sole focus
of attention (in the media) these days.

I'm bearish on Bitcoin yet bullish on Ethereum because of other factors
besides their valuation such as roadmap, potential and usability.

Usability is also the biggest complaint of the author. It's one of the biggest
factors preventing mass adoption.

~~~
lawlessone
Eth? the one that keeps getting hacked?

~~~
teawrecks
ETH has never been hacked. In fact, it can't be hacked. What you mean to say
is that DAPPs can be hacked. DAPP's can have unintended functionality that can
be exploited, but that has nothing to do with ETH. It would be like going back
to the mid 90s and saying, "this World Wide Web thing will never work because
it keeps getting hacked." Doesn't make any sense, it illustrates your
unfamiliarity with the subject.

~~~
grubles
"On Wednesday 19th July, 2017 a bug found in the multi-signature wallet
("multi-sig") code used as part of Parity Wallet software was exploited by
parties unknown. As of the time of writing, three wallet accounts holding
large balances of ETH have been compromised and the balances moved into
accounts held by the attacker."

[https://blog.ethcore.io/the-multi-sig-hack-a-
postmortem/](https://blog.ethcore.io/the-multi-sig-hack-a-postmortem/)

~~~
StronglyTyped
Parity is a 3rd-party wallet application and is not Ethereum.

~~~
grubles
Parity accounts for roughly 5,000 of all Ethereum nodes (of which there is no
"official" "1st-party" implementation) [0]. As a result of being so popular,
Parity users were collectively robbed of $30,000,000 of Ether due to the
multisignature (typically used to _secure_ funds versus single-signature-
required transacting) smart contract bug.

[0][https://www.ethernodes.org/network/1](https://www.ethernodes.org/network/1)

[1][https://www.coindesk.com/30-million-ether-reported-stolen-
pa...](https://www.coindesk.com/30-million-ether-reported-stolen-parity-
wallet-breach/)

------
forestjc
cached version :
[https://webcache.googleusercontent.com/search?q=cache:https:...](https://webcache.googleusercontent.com/search?q=cache:https://devolutionreview.com/bearish-
on-bitcoin/)

------
nodamage
I asked this question in another thread but really haven't seen a satisfactory
response yet:

David Karpeles admitted at trial to running bots on Mt. Gox, and such bots
were implicated in the rise of Bitcoin's price up to $1000 in 2013. Bitcoin
has experienced a similar jump in value over the past year. If Mt. Gox
successfully manipulated the price of Bitcoin using bots in the past, how do
we know other exchanges aren't doing the exact same thing right now?

Don't get me wrong, I think there is potential value in Bitcoin as a
distributed/frictionless method of money transfer, however as an
asset/investment I think it's extremely risky and I'm not necessarily sure the
run up to $4000 reflects its underlying value: the ecosystem is largely
unregulated and as such there is a greater risk of fraudulent activity and
manipulation that would not be permitted under a regulated market. Especially
if the pseudonymous nature of Bitcoin transactions makes such manipulation
harder to detect.

I am curious if anyone who has recently put money into Bitcoin has thought
about this, and if so, what made them to decide to invest anyway? Am I just
being paranoid?

~~~
mrb
« _how do we know other exchanges aren 't doing the exact same thing right
now_»

It's very simple. Before 2013 MtGox was the largest Bitcoin exchange in the
world with the most volume (something like 80-90% of the market—I don't
remember the exact numbers). They effectively defined the price and the bot
could control it.

Nowadays there are dozens/hundreds of exchanges around the world. One bot
trying to increase the price on one exchange would get severely arbitraged
through other exchanges, and the cheating exchange would be quickly driven
into insolvency.

Also Mark Karpeles was a sole proprietor of a private company. He had free
reigns and no one to answer to. It was easy for him to decide to run this
fraudulent bot. The chance of the same illegal manipulation happening at very
high profiles exchanges like Coinbase/GDAX or Gemini who are VC-funded and run
by respectable executives is very low.

~~~
nodamage
So you think there's zero chance of collusion between exchanges as well? Isn't
there some evidence that bots are currently active on major exchanges? I keep
hearing about suspicious activity on Bitfenix... aren't they one of the
largest exchanges?

> The chance of the same illegal manipulation happening at very high profiles
> exchanges like Coinbase/GDAX or Gemini who are VC-funded and run by
> respectable executives is very low.

Yeah, I don't expect this to be occurring at US companies who presumably could
be prosecuted for fraud. But what about other companies that are based in
countries with less regulation (or with regulators that could be paid to look
the other way)?

~~~
mrb
The Bitcoin market cap grew from $1 billion in 2013 to $65 billion today. The
larger it gets and the more exchanges exist, the more difficult it becomes to
control/cheat the price with a fraudulent bot like MtGox did.

You seem to be confusing legitimate bots (written by traders to use an
exchange's API) with the MtGox fraudulent bot (which was using fake dollars
injected in the trading engine by Karpeles). These are 2 very different
things. Of course legitimate bots exist, but I don't believe that any big
exchange today (including Bitfinex) runs fraudulent bots capitalized with fake
money.

------
mrb
« _Instead of the vastly changed future with digital currencies and the
breakthrough of the Blockchain technology we were promised, we’ve just been
stuck with a huge bubble and growing complications_ »

This guy simply needs more patience. The social & economic changes that
cryptocurrencies sparked are barely beginning. They _will_ take decades to
fully unfold. Just because "it" hasn't happened yet doesn't necessarily mean
cryptos are worthless and will all crash to zero.

It is true, however, that there is a bubble. But there are always bubbles at
various points of the development of most revolutionary technologies. And
Bitcoin's bubbles are becoming tamer over time.¹ In fact they are becoming
tame enough that Bitcoin's returns are sometimes beaten by blue chip stocks:
in 2016 AMD went up 420% but BTC only 170%.

¹ It took 1 month to go 10× from $120 to $1200 in Nov 2013, but 1 year to go
10× from $490 to $4900 in Aug 2017.

------
matthberg
Looks like the site is inaccessible due to resource limits being reached.

~~~
Tepix
Go to google and enter

cache:devolutionreview.com/bearish-on-bitcoin/

------
legohead
Scenario: The US bans all banks and credit agencies from transferring money
to/from bitcoin exchanges. Most of the other powerful countries follow suit.

Now what?

~~~
jondubois
Investment would shift to 'weak' countries which support cryptocurrencies and
potentially cause a flip the economic order.

------
arisAlexis
Tulips had no innovation. Not sure why techies don't get it. Its so simple
that this is a wrong comparison but every two months someone writes an article
about it. It's beyond me.

------
satoshinotamoto
Hacker News teaches me new things daily, see I thought Bitcoin was a
decentralized payment network, that is a solution to a class of distributed
network communication problems known as Byzantine generals problem.

I did not realize Bitcoin was actually a Plant or more specifically a flowers
bulb. I have been using computers my whole life, I had no clue I could run
flowers on my machine, also flowers would allow me to create value using
electricity, and send value over TCP/IP without a trusted third party.

Go ahead and sell your bitcoin or whatever the fuck you want to do because
your clearly too dumb to understand a protocol, or the abilities a protocol
can provide.

Wait a minute Bitcoin can't be a flower, I mean it doesn't die during the
winter, also my cat has never tried to eat it.

------
saosebastiao
I love how if you think something is a bubble, you can just compare it to any
bubble in the past, ignoring all of the nuances.

If you want a parallel to Tulip Mania, you have Beanie Babies. It was pure
asset inflation for the sake of asset inflation. There was no innovation
(except in markets for distribution of the asset), just wild speculation on
things that were almost completely useless.

I do think cryptocurrency is in a bubble, but I see it far closer to Railway
Mania or the Dot Com bubble. In both cases there is a clear cut demonstration
of potential utility even pre-bubble, meaning there very likely a post-bubble
future for the technology, even if the landscape changes drastically in the
meantime. Railway mania in particular had plenty of failures, but it also had
many companies that were viable but just overvalued, and even beyond that,
there were plenty of companies that thrived post bubble.

I have my own speculations as to who will come out alive when the bubble
crashes, and it certainly wont be anything tied to "smart" contracts, which
has been the source of most of the ridiculous market behavior as of late
(ERC20 especially). Others will survive on their merits, and I'll say this
much: If it isn't low latency, low energy consumption, highly liquid, and
traceable, it's as good as dead.

~~~
cm2187
I am not sure I would compare the invention of the internet or the development
of railways to cryptocurrencies. At best, cryptocurrencies are a very minor
technological development.

