Is Bitcoin a Bubble?
Bitcoin has soared to over $39,000 and many Bitcoin bears claim that Bitcoin is just another bubble like the dot com crash or Beanie baby craze.
Whenever anything goes up in price incredibly fast, it makes sense to question the true intrinsic value.
However, I can confidently say that Bitcoin is not a bubble and will only go up in price over the long term.
In this article, I’ll discuss several reasons why Bitcoin is the best modern day digital store of value we’ve ever seen and why Bitcoin has specific properties that fight against any bubble risks.
If you’re thinking about investing in Bitcoin then be sure to read the rest of this article.
Bubble Example: 2000 Dot Com Crash
In 2000, the dot com stock crash saw internet stocks trading at ridiculous valuations that had nothing to do with the underfying value of those companies.
The internet was a new phenomeoun and many people drove up stock prices in new internet companies that generated little to no revenue.
After a while, many investors realize that stock prices did not match the fundamentals of these stocks.
Thus, the dot com bubble bust and many companies never recovered.
Bitcoin Has Anti-Bubble Prorperties By Design
First off, Bitcoin possesses special properties that protect it from any hype or bubble mania that could crash its price.
Fundamentals will always win in the long run but the good thing is that Bitcoin has excellent underlying properties that protect it from massive crashes.
There are only 18 million Bitcoins in circulation, which means Bitcoin is a scarce store of value and cannot be diluted or printed by governments.
Bitcoin is easy to transfer across the world with ease and you can easily send thousands, millions, or billions od dollars worth of Bitcoin with ease.
Compare this to how difficult it would be to transfer $1 million dollars worth of gold or silver across borders.
Precious Metals are heavy and difficult to transport for long distances.
They can also be stolen easily or disguised without knowing the true owner of the gold/silver.
Bitcoin trades on a blockchain that records every transaction under public record.
Bitcoin is a Decentralized Store of Value Backed By Trust Instead of Governement Promises
Bitcoin is a decentralized form of money that People Can Trust
Most bubbles occur because investors lose faith in the marketplace.
Going back to 2000, internet stock investors lost faith in dot com stocks and everyone panic sold all the way to the bottom.
Bitcoin isn’t an asset like a stock or bond. It’s a modern day digital store of value that can serve many different functions.
Bitcoin is good for storing wealth, buying goods & services, transferring money across the globe, and even paying salaries.
As long as people continue to value Bitcoin as a store of wealth, Bitcoin won’t suffer from a massive loss of trust like dot com stocks in 2000 did.
Bitcoin is Scarce Enough to Always Have Some Intrinsic Value
Scarcity Is a Key Propety in Anything of Value
Humans naturally value what appears scarce or rare.
More supply of anything reduces its value over time.
For example, let’s compare a Ferrari sports car vs a Toyota.
The Ferrari costs more because it’s a rare vehicle. You don’t see too many people driving Ferrari’s everyday and Ferrari produces a limited number of vehicles each year.
In contrast, Toyota cars are mass produced and much cheaper to purchase.
Anyone can buy a Toyota but only a select few will ever be able to afford a Ferrari.
Now, let’s look at the different between Bitcoin and the US Dollar.
There are currently 16 million Bitcoins in circulation and 20 trillion US dollars according to the M3 money supply.
What’s more scarce: Bitcoin or a US dollar?
While the US dollar continues to soar in supply, Bitcoin will never exceed 21 million coins in total supply.
By nature, Bitcoin is bubble proof due to its scarcity.
Humans like rare stuff and there will always be someone who wants a Bitcoin.
True Intrinsic Value Gives Bitcoin Long Term Value
I don’t think it’s too late to invest in Bitcoin because it solves a real world problem with grace and ease.
True money has always been gold but it’s heavy and extremely hard to mine from the earth and transport easily.
Bitcoin is a wonderful alternative that is more eco-friendly and easy to transfer across the globe.
Best of all, it’s in limited supply and decentralized from governements and the banking system.
Anyone can buy Bitcoin no matter your gender, race, creed, color, or nationality.
It’s available for purchase 24/7/365 and remains securly in your digital wallet until you put it to good use.
All of these properties explain why Bitcoin is not a bubble and why I remain bullish on Bitcoin as a tremendous store of value for long term value investors.