Bitcoin's rise has been astronomical in the last year or so. How do we know that this isn't a bubble that will bankrupt 95% of its users?
Ask HN: How do we know Bitcoin is not in a bubble?
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Re: Ask HN: How do we know Bitcoin is not in a bubble?
#2we don't.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#3we don't.
We even know it is a bubble.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#4As a fiat currency, it is almost by definition a bubble. It's fundamental value is essentially nil, yet it's "price" is positive. In the current equilibrium, people seem to agree that Bitcoin is a good store of value (because it is perhaps limited in supply and ownership is verifiable). Fortunately/unfortunately, other cryptocurrencies are just as useful in this regard. As such, Bitcoin's value is something of a sunspot equilibrium. Any sufficiently big shock or event could shift the focus to another cryptocurrency or other product entirely.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#5It probably is a bubble.
The problem is when it bursts, we don't know if we'll be in better positions having entered now, or having entered after.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#6It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#7It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.
If you are certain it will collapse you can make a lot of money shorting it. If you are 100% sure, there is no downside.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#8It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.
If you are certain it will collapse you can make a lot of money shorting it. If you are 100% sure, there is no downside.
Generally the problem with shorting is that the shorts are time limited - because it is a derivative bet, not a proper loan.
And following Keynes the market can stay irrational longer than you can stay solvent.
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#9It very obviously is. Nothing can grow at such an insane rate and be a stable, long-lasting thing. No one knows how high it will go, but that it will collapse hard soon is 100% sure.
If you are certain it will collapse you can make a lot of money shorting it. If you are 100% sure, there is no downside.
What financial mechanisms exist to short Bitcoin?
Re: Ask HN: How do we know Bitcoin is not in a bubble?
#10As a fiat currency, it is almost by definition a bubble. It's fundamental value is essentially nil, yet it's "price" is positive. In the current equilibrium, people seem to agree that Bitcoin is a good store of value (because it is perhaps limited in supply and ownership is verifiable). Fortunately/unfortunately, other cryptocurrencies are just as useful in this regard. As such, Bitcoin's value is something of a suns…
"It's fundamental value is essentially nil,"
That's not strictly true. It's fundamental value is the effort required to obtain it - which at the moment is some rather large amount of electricity and hardware. If you have deployed those resources you will not let the Bitcoins go for any less in real exchange unless you absolutely have to.
That is the same for anything that is a currency. It's base value is what you have to do to get it.
The problem with crypto-currencies is that nobody has to hold them to deliver them anywhere. There is no solid drain other than to savings.