BITCOIN – Is this a bubble?

Since everyone’s talking about it, here’s my 2cents .

Since everyone’s talking about it, here’s my 2-cents. As a disclaimer, I’m not a financial professional. This is simply my opinion using only my understanding of how fiat currency works, economics, my experience swing trading stocks, and just simply… logic. Take it however you wish, but maybe it can shed some light for some of you.

All fiat currency is simply a storage of value. The only way it works is if everyone agrees to accept it. Anything can be a currency. The reason why the dollar or any government fiat currency works is because the government says it works. That’s it–plain and simple. The currency is only as strong as the one who issues it. This is where ‘precious metals’ such as gold comes into play. It can be traded even without government intervention and is generally accepted by everyone.

General Criteria for Acceptance:
– limited supply
– general public acceptance
– cannot be easily duplicated (so supply can’t artificially be created)
– cannot be double spent

This is where cryptocurrency comes into play, and Bitcoin meets the criteria in a very interesting way. Most people are concerned about the coin being hacked. The truth is, mining is the only way to hack the coin using computer processing to guess the passwords. In the ‘hacker’ world, this is called ‘brute force’ hacking. The NSA has huge servers with the best processing power the world has to offer dedicated to such things. So what’s bitcoin’s main vulnerability? Well, if you can manage to own 51% of the whole currency, then you can mine a bunch of currency, and keep it private. Then when you’re ready, you can flood the market with your bitcoins, voiding the coins mined by the others. This is because bitcoin validates only the ones with the longest hash, and Mr. 51% will have the longest hashes. However, it’s a vulnerability with any currency. If you can buy your way into monopolizing any currency creation, you can control the supply, and therefore the demand. This is how the Federal Reserve works in the simplest form. That’s how strong this technology is. So how are people hacking bitcoin? Well they’re not; they’re hacking your wallets just like if someone were to rob a bank or your personal wallet. Therefore, the best way to protect yourself is to store your bitcoins in a hardware wallet and bury it!

I think we all can agree that this is strong technology. Bitcoin is hardcoded where supply will only decrease over time due to the increasing difficulty of mining more; thus, creating a strong price. My personal fear is if governments ban it, which would stop it and reduce the demand. However, I recently learned that after China banned bitcoin, it only made it stronger. Japan now accepts it as legitiment  currency and CBOE (Chicago Board Options Exchange) just started accepting trading futures on it. It’s also about to launch at the CME (Chicago Mercantile Exchange), and many of the middle eastern countries are working on ways of accumulating it (*cough* Saudi Arabia). So to me, it seems the ‘general acceptance’ criteria is being ‘checked off.’

Then why the recent pop? I believe it all comes down to these three main drivers. Corruption and lack of trust in our political system; the losing of trust in the almighty dollar; and everyone’s talking about it and making it just a tad bit more popular. We want something DECENTRALIZED!

So main demand drivers:
– anonymity for the criminal network
– tax benefits (hiding) for the rich (easier than parking money in certain countries and banks
– easy to transfer money from one place to another, e.g., I can send money to another country to friends and family without paying a dime in bank fees (paypal and western union alternative)
– once the above creates the baseline of demand and acceptance, it’s only a matter of time before the general public will start using this (i.e., Japan)
– so let’s say you believe that your government is about to go kaput… then you take all your money and park it in bitcoin… then either buy stuff with it or exchange it with another country’s currency of which you have more faith.

This is how many treat the dollar and gold.

bitcoin size

So how much is this worth?
– if you tap into just a small % of % of the overall trillions of dollars of worldwide GDP… then divide this by current or future supply of bitcoins… bitcoin would be worth well into the $100,000s… per… coin.
– So is the bubble going to pop? Absolutely, but it will rebound and continue to trend up as it does now. I believe what we call ‘the bubble’ is simply just large swings in volatility. Volatility will subside once there are more people trading the currency, fiat currency, crypto-whatever.

So in my humble opinion… make like N’Sync and buy, buy, buy! 😉

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Andrew Wells

Andrew Wells is the CEO of Alabama and Tennessee ReBath, Co-Founder and President of H2T Digital and Co-Founder of Executive Lion and in between emails spends his time swing-trading stocks and working with a few mission NGOs in Moldova. Andrew’s has a background in technology and has key strengths in strategy, turn-arounds, and problem solving that transcends any one department or industry. He currently splits his time between Birmingham and Nashville. Since 2005 have been very active at Church of the Highlands. He enjoys serving God, is an adrenaline junky, and is passionate about fighting the injustices of this world. If you want to learn more about Andrew or what he can do for you email him at andrew@executivelion.com.

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