Why Bitcoin is Not a Bubble or a Tulip Bulb

. 9 min read

It's quite common to see and hear people pointing at bitcoin as a bubble doomed to pop and inevitably fail; the problem is this has been happening for over a decade now. Even with significant corrections from euphoric highs, there's plenty of reasons that point to the likely continued success of bitcoin, blockchain, and the cryptocurrency space as a whole. It's time to break down why bitcoin matters, why bitcoin isn't tulip mania all over again, and why you should care about it at all.

No Asset has a Clean Line to the Sky

When looking at charts for various assets outside of cryptocurrency, you'll be hard-pressed to find one that is relatively stable, let alone one with a persistent and smooth rise. While bitcoin may fall in price from time to time, that doesn't make it any different to other assets. While volatility has been quite high in bitcoin since the beginning as the asset has grown larger, so has this volatility reduced. Something that only points to the strength of the bitcoin market. Corrections happen, nothing goes up forever in a straight line, and bitcoin is no different.

The volatility of new assets is to be expected, especially when something is the start of what you could consider an asset class in its own right. Price discovery takes time and can look scary, but it's a natural process that typically reduces as volume grows and price discovery is established. Even cryptocurrency arbitrage is beginning to get a little harder as the market becomes more robust and the spread between major exchanges is closing, in-turn reducing the changes of huge arbitrage profits. If you zoom out almost year on year holding bitcoin was profitable, even with some of the significant pullbacks that have occurred throughout its history. While it's easy to get caught up in the price action of today, the price action of the past often tells a more complete story.

Parabolic moves aren't the norm.

bitcoin moon price rise

Bitcoin vs Gold

It's common during the topic of bubbles and storing of value for people to bring up gold and other precious metals. While gold has proven itself a reliable asset, it isn't problem-free. While it's easy for people to point to highly publicized issues in the cryptocurrency space from the past. These past issues could reasonably be considered a natural byproduct of the growth and evolution of a technology in its infancy, even in a heavily regulated market, problems still occur.

Fake gold is a problem that is hard to ignore, if you've ever sold gold yourself to a broker you will have likely noticed how much attention is paid to the quality and authenticity of the gold, unlike the ease of proving the authenticity of bitcoin. It's not uncommon to see even fake branded bars of gold filled with cheap metals being sold on the black market for those willing to try and pass them off as genuine. The problem of fake gold is expected to cause millions of dollars in damage to the gold market every year. Massive amounts of fake gold have even been found to be backing loans that cause further havoc and is likely a bigger problem than many realize.

Does fake gold existing mean that gold itself is a lousy asset? Absolutely not, but next time you hear the various bitcoin vs gold arguments many "gold bugs" often like to make, consider that perhaps both of these assets have their problems and neither is perfect, at least not yet. You also have the issue of paper gold trading that takes a lot of the "but it's not physical you can't hold it" arguments off the table as well. While not everyone paper trades gold, it is a large enough market to have a significant effect on the market price of gold and affect all those that invest in it.

You can fork bitcoin, but you can't fake bitcoin.

Bitcoin isn't Comparable to Tulip Mania

Whenever an asset is performing beyond the expectations of the market, people tend to start talking obsessively about tulip bulbs. Ever since bitcoin began to gain traction, this too has been a topic from those that are sceptical. The problem is bitcoin has a few inherent differences to tulip bulbs.

The first problem tulips face is that there's no real hard limit to how many you could theoretically produce, sure you may face supply problems initially, but if you put in the effort and a little time you could be rolling in tulip bulbs after a while leading to an inevitable bubble event. The lack of a fixed supply is something that is already quite problematic for this comparison, while tulips have no fixed supply bitcoin does (21 million) and to top that off the rate at which that is produced slows every halving event. Having a fixed supply stops people jumping on this rare commodity and producing vast amounts of it and flooding the market, I'm sure many of us remember at least one craze in recent years such as the insanity that was fidget spinners, found in almost every store for a short time until supply skyrocketed. Prices fell as they collapsed under the weight of their own success and the hype bubble popped, leaving fidget spinners filling bargain bins everywhere.

Speculation is another thing that gets brought up commonly in the bitcoin tulip mania comparison, the issue here is that so many other assets are speculative as well. At the end of the day, if the speculation on any asset is inherently bearish enough the odds are high that the market response will be bearish, markets aren't always rational, but they do tend to be emotional. While it's unlikely the skeptics of bitcoin will stop with the bitcoin is a bubble rant, the longer they go on with it, and the more times they declare bitcoin a failure, the less it matters or will be taken seriously.

You can't grow bitcoin.

fidget spinners and tulip mania

Merchants that Accept Bitcoin Matter

To some degree, merchants make the world turn. While you could argue that many industries are moving online, the point still stands that the retail sector is not just vast but all-consuming. Food, entertainment, essentials all come back to merchants of some form. For merchants, bitcoin has some great potential, one huge problem for merchants and one of the reasons payment types are often so limited is chargeback fraud. If you've ever used a payment method like PayPal, you have likely been weary of the potential for chargebacks which are a common problem for sellers of any goods and services. While fees and speed are a concern for merchants (and something layer two technologies are advancing to improve for bitcoin), chargeback risk is virtually null once payment is adequately confirmed for on-chain bitcoin transactions.

If you are dealing with more significant transactions removing chargeback fraud from the picture makes bitcoin a really attractive payment type, and is one of the reasons that so many businesses are adopting this payment method as it becomes more popular among customers. When combined with services that convert crypto to fiat upon receipt, this can be a very streamlined process for merchants looking to increase the payment methods they accept or reduce their reliance on traditional banking. While in the past you might have been able to get away with the claim that bitcoin is hard to spend unlike "real money", these days this is a claim that is becoming less and less comparable to the reality people experience.

However, you may be wondering why this matters, how it affects the potential for bitcoin to be a bubble, and that comes back to the power of merchant adoption. Anything that gains traction with merchants is unlikely to go away without a fight as long as adoption continues to grow. With even payment providers like PayPal whispered to be looking to get in on the action themselves, it's reasonably safe to say that there is a lot of internal and external influence taking place in this arena from bitcoin and other cryptocurrencies.

Immutable transactions are more than technical jargon.

Bitcoin Stores Wealth for Those That Need it Most

In the modern world, for many of us, it's easy to forget that some regions struggle immensely with the value of their money and issues like hyperinflation. Countries like Venezuela, Zimbabwe, Argentina have previously or are currently in the midst of struggling with an economic crisis. Interestingly many of these regions are turning to bitcoin as a way to store wealth or engage in capital flight to protect their assets better while they migrate or until, hopefully, the situation improves. Getting funds across the world in minutes instead of days, being able to pay someone anywhere in the world, or moving your funds to your new home (wherever it may be) is valuable, and all abilities that bitcoin provides.

Even though the price of bitcoin can be incredibly volatile compared to assets like the US dollar, compared to some fiat currencies, it can seem like a dream. When an economy is in crisis, often local bitcoin traders using P2P platforms like LocalCoinSwap are the first businesses that start to increase in their activity. Some of the most active countries for P2P trading have grown to be regions that you perhaps wouldn't expect to be heavily engaged in speculation or even modern payment methods, but for them speculating on digital assets is less important than improving their financial stability and security.

Why is bitcoin not a bubble? It provides real value to real people all around the world.

storing bitcoin and saving money

You Don't Have to Buy a Whole Bitcoin

People often point to the price of bitcoin as some sign of impending doom, the thing that is often ignored is that you don't need to pay for things with "bitcoins" you can instead pay for things with small portions of bitcoin. The smallest unit of a bitcoin is called a satoshi, which might seem like a measly amount at 1/100,000,000 of a bitcoin, but this flexibility has a lot of power.

When you buy something with the dollar or euro it's easy to take for granted the relative market value where a loaf of bread may cost around a dollar, but for some people, things can get extreme and this relativity can start getting out of balance. There's nothing to stop you having to pay for a cup of coffee with a million dollars, except that your currency is currently doing relatively well on the global scale. So just because one bitcoin may cost thousands of dollars, that doesn't mean you can't spend tiny increments if you wanted. Where this becomes useful is that regardless of how bitcoin is doing, it's likely that there is a practical unit of account you can use to pay for goods and services.

If you want to pay for something online that costs around ~$100 USD this is quite easy to do, especially with P2P traders making accessing bitcoin with almost any payment method possible. Whether you want to buy bitcoin with Airtm, EcoCash, PayPal or even things like gift cards, you can use P2P trading. For something that is so often called a bubble, it does seem to be incredibly flexible, both thanks to its design, the tools and community that surrounds it.

Stack sats, not bread.

Bitcoin is Dead - Long Live Bitcoin

Claims of the demise of bitcoin seem to be as common as the next apocalypse. With every bitcoin obituary, the less effect it appears to have on the sentiment of not just digital currency traders, but those outside the space as well. As the years go by, more and more articles on the death of bitcoin become outdated, forming somewhat of a running joke. While many digital currencies may come and go, bitcoin seems to be here to stay, at the very least for the foreseeable future.

Is bitcoin real money? No, but maybe it's better, perhaps it solves many of the problems we have with traditional fiat currency, or maybe that question just doesn't matter. The internet was once considered a passing fad as well, and while the landscape has changed tremendously, some things have held on and only grown stronger with time. It's been over a decade now; maybe it's time to accept that the fear of a bitcoin bubble is nothing more than nerves about a new technology, one that is only maturing with time.

The digital currency revolution may not replace "real money" tomorrow or ever replace all other forms of storing value, but that doesn't make it any less important. Bitcoin has many strengths; one of them is how it significantly differs from many of the ways humans have stored value, exchanged goods and services, and traded with one another in the past.

Bitcoin price changes, its value proposition doesn't.

is bitcoin dead?

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