Bitcoin: the new gluten free.
It’s hard to go 10 minutes without hearing something about Bitcoin. Whether it’s that weird kid from high school who claims he just made your yearly salary in a week, or Aunt Linda asking what those “gosh darn robot-coins are for.” Everyone thinks they know more than the next guy and worse, everyone has an opinion and really, no one cares.
I’m not here to explain to you what Bitcoin and The Blockchain are, because in all honesty, like 98% of you jabronis out there, I don’t fully understand. However, what I am here to do is explain what a textbook bubble we are seeing occur.
PSA for state schoolers
A bubble is an economic cycle where the price of an asset/assets rapidly increases and then quickly drops. During the boom, assets are purchased at a high price on the belief that the assets can be resold at an even higher price. When investors are no longer willing to buy at the elevated cost, confidence is lost, and the bubble deflates causing a crash. Much like the shooting star of your potential, the sky was the limit, but now you’re about as valuable as a the binder of Pokemon Cards under your childhood bed.
FOMO for finance
What drives the creation/deflation of economic bubbles is the herd instinct, which is exactly what it sounds like. It’s the reason most of you morons bought bitcoin as it was spiking and have since lost the majority of your investment. “Everyone else is doing it, so I should probably do it too.” This mentality is what drives and prompts mass fluctuations and instability. Goddamn Lemmings.
Boom to bust
People are not only hyper boned up about the cash to be made from bitcoin but the the new terminology. Last month Long Island Iced Tea Corp changed their name to Long Blockchain Corp, which increased its stock by 500%.
If you think there’s nothing in common between an iced tea company and blockchain, you’re not alone. The SEC is now cracking down on this name game . In mid-December they ruled that some of the “coins” were considered securities and therefore subject to agency regulations. Can we say surprise, surprise, again? The Federal Government claims a stake in the earnings.
Most of us are too young to remember the Dot-com bubble, but these latest developments in bitcoin are shockingly reminiscent. An explosion of interest, prompting an insane amount of investment followed by a major crash. Look in any financial textbook, or ask someone for an example of a bubble, and inevitably you will hear about either Pets.com or the tulip in the 17th century.
Explain meow, finance god Mike
Pets.com, which even advertised during the Super Bowl, went public in February 2000 and shortly after achieved a $100 million market value. But it went out of business about eight months later. Although Pets.com was foundationally unstable to begin with, the bursting of the dot-com bubble was its ultimate collapse and the loss of $300 million in investment capital. Not even that dumbass sock puppet could save them.
Want another example? The most famous bubble of all time, the tulip-bubble. In 17th-century Netherlands, the novel availability of tulip bulbs from Turkey led to spikes in demand that dramatically drove up the price. At the peak of tulip mania, some single tulip bulbs sold for more than ten times the annual income of a skilled craftsworker.
Here’s the truth
Will bitcoin crash tomorrow? Will it reach $1 million per coin? I have no idea, and neither does anyone else and if they claim otherwise, be wary of the brand-new speakers that conveniently fell off the back of a truck they are trying to sell you.
There is no doubt people have made a shit-load of money on bitcoin, and I’m not trying to tell you to stay away, but I am telling you is be careful. You have to treat bitcoin like a preseason bet the Browns will win the Super Bowl. Sure, mathematically there’s a chance, and if it does happen, you’re walking away with some fat stacks. In reality, the most likely outcome is you lose every single dollar you ponied up and have to explain to your girlfriend why you can’t afford any new charms for her Pandora bracelet this Valentine’s Day.
Food for thought with the “Odd Lot Theory”
The idea is that by following the moves your everyday Joe Schmoe makes investing and doing the exact opposite, you have a better-than-average chance of success. I’m not making this up; we learn this shit in school.
At the end of the day, remember that Bitcoin is not a physical thing like gold, it can crash to $0, and you will be left with nothing. At least with the tulip bubble, you could have a couple of nice flowers to look at come Spring.