Cryptocurrencies: Bitcoin, Ethereum & ICOs - a Bubble in the making?

September 15, 2017

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Cryptocurrencies
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Cryptocurrencies: Bitcoin, Ethereum & ICOs - a Bubble in the making?

Cryptocurrencies: Bitcoin, Ethereum & ICOs

This has been a favourite discussion and a hot topic, whenever I bring it up with my peers and new acquaintances where I go. Everyone seems to have heard quite a bit about Digital Currencies, and all are very aware of the meteoric rise in their market values over the past 6 months. Prima facie, everyone appears to be an expert in Bitcoins, Etheruem, Bitcash or ICOs in some way or another.

Is that really so?

Views from the “old school” Professionals

As early as 2014, CNBC interviewed the legendary Oracle of Omaha about Bitcoin, Warren Buffett did not mince his words. He quipped,

“Stay away from it! It’s a mirage basically.“

Of course, Bitcoin went from around US$500 to hit new highs of US$4,500 levels in 2017! So was the Oracle wrong?

Mark Cuban, the billionaire investor and businessman, once famously twittered in May 2017 about Bitcoin and how he believed that,

“it was in a bubble…crypto is like gold. More religion than asset. Except of course gold makes nice jewelry. #crypto notsomuch“

And then, in a few months, only to reverse his opinions on Cryptocurrencies, when he announced his investments in ICOs and Coindesk!

The most recent and harshest critic of Bitcoin and Cryptocurrencies came from Jamie Dimon, CEO of JP Morgan - one of the grand old dames in the Banking world.

Jamie Dimon warned about Bitcoins and delivered a stern warning to his staff,

“It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed…I will fire (my staff) in a second…It’s against our rules and they are stupid.“

Jeffrey Gundlach, DoubleLine Capital’s founder, spoke about Bitcoin and Digital Currencies,

“Maybe I’m just too old, but I’m going to let this mania go on without me.“

Market Kneejerks or Bursting of a Bubble?

Bitcoin Chart in 2017

Ethereum Chart in 2017

These are the graphs of Bitcoin and Ethereum. Both have shown big retracements since their peaks a couple of weeks back.

Even Katy Perry knows a little about Cryptocurrencies & ICOs, in her recent hit “Chained to the Rhythm”, she sang,

“So comfortable, we are living in a bubble, bubble.
So comfortable, we cannot see the trouble, trouble.“

What are your views on the Cryptocurrencies? Do you think it’s a bubble out there? I’m one of the few who share that opinion.

Or are you, like my co-founder, who believes that Cryptocurrencies are the one of the next big innovations that will change our world for the better.

Which side of the coin do you sit on?

Cryptocurrencies, Investments

about author Seng Ti

Seng Ti is currently heading a Treasury & Finance team in a MNC and is serving as the President of the Association of Corporate Treasury (Singapore) aka ACTS. He enjoys reading and discussing about current affairs, politics, life, wine and lives a normal life with his wife and 2 young kids.

Tan Yew Kim

everything is bubble, even stock, so??? It is those who are left holding the baby is the bubble buddies. Hope u are not one.
So long there is money to make who care? Just play with stop loss will be fine. Just dont be the guy who carry the baby when the music stop.
- dick23
  
  yes absolutely, we need to be watchful of current news so that we won’t be caught when the bubble really bursts!
dick23

I just saw this earlier in the morning, and thought this might interest you. https://www.nordnet.se/mux/web/marknaden/aktiehemsidan/index.html?identifier=109538

In case you are wondering what this is..

Basically, Bitcoin Tracker One is designed to mirror the return of the underlying asset, U.S. dollar (USD) per bitcoin. The product is an exchange traded note designed to track the movement of the underlying asset after fees. The currency denomination of the certificate is SEK. Listed on Nasdaq Stockholm.

It’s Nordnets trading platform. They are one of the biggest investment and savings bank in nordic countries. It does trading straight through stock exchanges, so buyers are definitely who they say they are.

And guess what.. it looks like JP Morgan was one of the biggest buyers of Bitcoin today! https://uploads.disquscdn.com/images/7f3965f0ad98faf7ef2dff604277d50a817fac1f2522519f29813606d404f030.jpg
JIN

I am not holding any positions in cryptocurrencies but like everyone
else I am very keen to join the herd. Bitcoin, the current leader, seems
like the best choice as an investment option.

1) But will this dominance continue?

The upside is amazing , rising over 200% over the last six months.

2) What is the intrinsic value of Bitcoin?

Without
a floor, it may be tulip mania all over again, like what Dimon says. In
comparison, steel is used widely in building construction, while gold
is used widely in the manufacture of smart phones and computers due to
its
super conduction properties. Therefore if gold prices crashed, it
would still be worth something. Even then, the intrinsic value of the
most valuable metal can be zero, if its perceived properties becomes
non-essential.

In another perspective, if the world population
shrank 50% due to super-phoenomenal disasters, gold’s value would still
be recognized by the survivors. But if a comet wipes out everyone except
two persons on Earth. Holy macaroni! Gold may be worthless. Its food
and water that’s invaluable.

3) Can Bitcoin survive these two scenarios of “stress-test”?

Initially
Cryptocurrencies were created to ‘fill in the gaps’. Its rise to
popularity is a result of decentralized regulation, fintech
consumer-simplicity and minimal transaction costs. While the benefits
are well appreciated, do we truly know the trade-offs? For example,
China controls more than 70% of Bitcoin mining. This is a
result of
supply-demand economics. Large spaces in landlocked north. And excess
coal for very low-cost electricity generation. Those same natural
advantages are now being adopted by North Korea to mine for
Bitcoins and get-by sanctions.

4) Are Bitcoin buyers now supporting a leading cause of smog? And a regime?
- dick23
  
  Great questions you have raised there! Here are my 2 cents.
  
  I think no one has the crystal ball to the future, but my gut feel is that there is still great upside! Right now, I feel the development of bitcoin is in an awkward phase, where the number of bitcoin investors (or bitcoin market cap) has reached a critical mass, and regulators are playing catch-up.
  
  You are right that we can’t measure intrinsic value of bitcoin. Bitcoin is after all not a real asset or legal tender backed by central banks. Today, we trust our paper currencies because people trust its legality as a currency given by the central banks. Bitcoin proponents say there can be an alternative to the current system. What they propose is a new currency system that cannot be “interfered” or “manipulated” by any central bank in the world. Essentially, it is a decentralized and incorruptible system that governed by some in-built programming code that cannot be altered anyhow by a single person. So, bitcoin has no intrinsic value on its own, but its value will depend on the trust and acceptance of the masses.
  
  http://bitcoinist.com/2-3-billion-people-use-bitcoin-amazon/
  Imagine one day, people can use bitcoin to shop on Amazon, do you think bitcoin value will go up?
  
  The danger is that countries may put a hard ban and close all bitcoin exchanges like China. Or what if India comes up with a new digital currency to take the place of bitcoin. https://cointelegraph.com/news/indias-central-bank-considering-creating-digital-rupee-dislikes-bitcoin
  
  No one really knows what regulators are going to do to step in, but their actions will definitely have a big impact on the future of cryptocurrencies in general.
  
  My take is that there is still tremendous upside for bitcoin. The downside is that regulators slap an outright ban on bitcoin. Currently, I feel the tech geeks are moving faster than the regulators in this area. They are coming up with alternate coins like Monero, Dash.. which offer the possibility of completely anonymous transactions. How regulators are going to respond to these is anybody’s guess.
  https://news.bitcoin.com/meet-top-3-coins-cryptocurrency-anonymity-race/
  
  Anyway I am not 100% for bitcoin. For my personal portfolio, I will be holding some bitcoin as an alternative high-risk investment, to enjoy its upside if bitcoin goes mainstream. But be aware of the downside risks too, so my advice would be to only put in money that you are prepared to lose.