Are you bored of bitcoin yet? You shouldn’t be.
Sure, bitcoin coverage may have reached saturation point. But what’s interesting is how split people are when it comes to cryptocurrencies.
Some are calling cryptos wealth-destroyers. But is it really a generational fad? Is it, as AMP economist Shane Oliver suggests, a matter of hype sucking in a generation unfamiliar with a new asset class?
The most recent case of this that springs to mind is the dotcom bubble. Given that this was the most recent stock market bubble, it’s the one that is freshest in people’s minds.
Those who only cottoned on to the cryptocurrency story this year are quick to compare it to the dotcom bubble. Reminding us that, of the thousands of companies debuting at the time, most blew up. Among many of the tech firms at the time, there was a ‘get big or go home’ mentality. Businesses operated on the idea that if they created a service, customers — and profits — would follow.
Of course, history tells us that this only worked out for a few companies. Companies like Amazon.com, Inc. [NASDAQ:AMZN], Priceline Group Inc. [NASDAQ:PCLN], eBay Inc. [NASDAQ:EBAY] and Alphabet Inc. [NASDAQ:GOOGL] listed in the lead up to the dotcom bubble bursting.
Why are they still standing? Because they each had a product people wanted. And the CEOs of these firms were adept at reading the market and adapting their technology to suit their target audience.
But here’s the kicker: Anyone studying the crypto market for longer than five minutes will tell you the same thing: Not all cryptos are made equal. Of the 1,170 in existence today, it’s highly likely that 10 or so will remain standing when ‘crypto fever’ settles down.
Yes, bitcoin’s year-to-date rise of 705% looks unsustainable. That doesn’t mean it is.
Market psychology tells us that people are more comfortable when asset prices rise slowly.
Apple shares once rose 603%; granted, it took three years for this to play out. Same goes for The Priceline Group. Shares in the online travel company jumped an insane 1,192% in a similar timespan. Yet we don’t see people suggesting that these stocks are in a bubble. To boot, both of those stocks are now valued at double what they were at the end of 2012.
So, if shares could see gains like that, why is there so much hate for bitcoin in particular? Take a look at this graph:
Source: The Daily Shot
[Click to enlarge]
This chart helps explain why there’s little love from the mainstream about bitcoin’s (red line) incredible price rise this year.
Although, if the 400-year-old tulip bubble (blue line) is anything to go by, bitcoin still has some way to go before it becomes ‘worse than tulip bulbs’, as JPMorgan CEO Jamie Dimon suggested.
Also, it’s worth pointing out that Convoy Investments has taken bitcoin data from the start of 2014, when the bitcoin price was US$881 (AU$1,162). Meaning the crypto has risen 829% in that time. However, from the crypto’s inception in 2009 to the end of 2013, bitcoin has risen 1,361,766%.
The bitcoin boom is genuine
Either the bitcoin bubble is bigger than we realise, or they carefully selected data to suggest that the bubble is peaking.
I have no clue what the true price of bitcoin really is. Bitcoin is similar to other commodities where the market sets the price. Right now, people want ‘in’.
Maybe it’s fear of missing out driving investors into the crypto. Or maybe it’s the opportunity that bitcoin presents in the eyes of a new generation of investors.
Either way, the younger generation coming up today is looking at a vastly different investment landscape to the one from 20 years ago. The US stock market is at never-before-seen highs. Interest rates are at wealth-destroying lows. Housing is only affordable for dual-wage households. And the Aussie market is moving sideways.
Importantly, today’s youth is aware of currency manipulation. Over the past decade, we’ve witnessed central bank intervention on an unprecedented scale. Central banks have thrown money into economies to prop them up. They’ve lowered interest rates to protect government debt and weaken the value of fiat money.
The younger generation has seen what happens when ‘trusted’ parties decide the value of assets. It makes sense that they don’t have the same blind faith or optimism investors did decades ago.
Cryptocurrencies offer them freedom from this. A rare chance to shun the system that shunned them.
You can’t blame them for rushing in.
What you can do, though, is show them which cryptos are potentially likely to prosper over the long term.
Editor, Markets & Money