The Financial Crypto Bubble(s)
I am not a financial advisor. Per my bio I love freedom and distributed power that is really in the everyday person's hands as opposed to being consolidated in a vacuum of powerful governments ran by a few. I believe blockchain technology will make this a reality and in turn improve and protect the lives of many.
I feel it will continue to slowly transfer that power from those few to people like you. It will do this whether or not you make a quick buck on it and it will disrupt more than just currencies. However as many hear about it and start asking me and my fellow crypto enthusiasts where they should buy from, many of us can’t help but be cautious about how we respond. Especially if like me, this is more about a revolution and a way to peacefully transfer and distribute the world's power than it is to make a quick buck.
The road ahead for all newcomers in this space will need to be an overly cautious one with hype under control. Have you ever heard someone say “Bitcoin is a scam” or “don’t invest in crypto you’ll lose your money!”. Well… not exactly wrong according to history… but far from the truth in all too many ways. You see, Bitcoin like many financial bubbles of the past such as the Railway Mania, or the Dot-com bubble, the hype, and excitement over how disruptive the new technologies were caused many to buy-in. When they realized world-changing technologies won’t change the world in just one year or even one decade the price crashed.
In 2017 Thousands of projects popped up promising to change the world. “Our coin will grow even bigger than Bitcoin but we’re still small so you haven’t missed out!” many of them put this in bold letters on their front page. Just like the internet era of the 2000s, it became easy for scammers with no product at all to convince those unknowing of the mysterious new technology that they are the next bitcoin.
To this day however some of those projects are still going very strong. As many are realizing Bitcoin and Ethereum show no signs of slowing down as well as others. Right now however we do see signs of another wave of excitement and one day 2021 will be talked about as yet another bubble that skyrockets then pops.
Bitcoin Stock to Flow Model
You can see in this Stock to Flow Model chart for Bitcoin that it tends to follow a pattern that uses Bitcoins scarcity to predict its value. Now, this is just a mathematical equation, and we are people with emotions, excitement, and fear. As the presumed value increases we can see the waves of excitement as we overshot the Stock to Flow Model’s value estimate and the fear that ensued momentarily after.
Looking at the chart you may have guessed what’s going to happen. Currently, Bitcoin is just barely above its Stock to Flow value and looks as though it's going to continue rising above it. “Wow is that showing 100,000 bitcoin before the end of this year? And you think it’s going to overshoot it?” Sure but how high will it overshoot? When will it get there? How low will the fear afterward make it drop? You probably noticed the chart shows that the value increases exponentially and as it gets higher in the chart the smaller movements have a bigger effect on price.
You can probably now guess that on that graph going just a bit above the 100k mark you find 200–400k. and likely after that peak is hit, if it were to continue the pattern it’s followed for 10 years, a pretty big drop is in order.
We went over earlier how blockchain will revolutionize much more than currency. Here come the altcoins. Remember the saying regarding smartphones in the early days? “There’s an app for that!” There truly is an app for just about anything people can think of that’s solvable digitally and centrally. That’s because using computer programming you can make a computer do whatever you want! But… We’ve seen these apps (banking, social media, video streaming, shopping) give massive amounts of power we used to call our own to the central authority that runs the app.
“There’s a Dapp for that!” That’s what many will be saying as new projects continue to rise to create distributed software that gives the cool functionality you’ve grown accustomed to but with big monopolies and power vacuums out of the picture.
Many of these Dapps will have something else that helps in determining value. What the token and its software can provide. And the tokens Tokenomics. If you thought Stock to Flow was confusing. Try figuring out the individual properties that give utility tokens value.
Newcomers in 2017 had a fairly difficult time grasping what calculates these coins' value. As such many of the coins had a hard time following any predictable value anyway. Many “startups” knew this and also knew when everything is confusing many will jump to the cheapest coin as if it's the best bet on the most gains. “This coin is only two pennies! It must be like Bitcoin back in 2009!” After the “alt season” ended and the greed switched to fear when many startups just disappeared and their websites went offline. Most of the few thousand altcoins of 2017 dropped 99% and are now worth $0.
The Crypto Bubble
If you're new in crypto, welcome. Especially after last year, many are recognizing that we have massive problems, but a massive amount of people are hard at work making massive solutions. Getting into crypto can secure your financial future from the downfall of the traditional oppressive systems. I want to give a very clear word of caution to those new here that if you buy into any crypto without a clear understanding of what gives it value, how high its value will go, how low it may dip after this bull market, and how long it may take to have its value realized. You are gambling.
Gambling can be fun and even seasoned investors make investments they are not certain on. There are however some clear options out there that many including myself would argue are a lower risk than USD itself. Crypto is a great way to give the everyday person a way to keep an easy savings of some appreciating assets as opposed to their traditional depreciating savings accounts. You can take part in all but be sure to manage your risk. You wouldn’t put your life savings into a slot machine in Vegas even though you may go there from time to time.
The one thing to really take from this is we are entering yet another bull market bubble. Nearly all crypto’s from the granddaddy and value storing master Bitcoin itself to the rest of the top 10/100/1000 coins and many scam coins that won't even attempt to do anything but get you to buy, will likely show massive gains in the coming months and that will likely end as some who’ve been here a while would say “according to schedule”.
You can pick proven assets or speculative assets. To secure your future with a well-proven holder of value like Bitcoin you need only timing or patience. You will either get in at a good time this bull market and get out before it drops, or you will get in late in which case you need only patience through the bear market which hasn’t really ever lasted that long. Whatever you do I’d try not to FOMO (fear of missing out) near the top and if you do definitely try not to panic sell at the bottom… It may seem strange when our hard-earned money is on the line and emotions are high but buying high and selling low is the opposite of how you do this right. Either way Bitcoin and the revolution will continue.
Thank you for reading and if you have comments feel free to leave them below!
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