On Tulips and Hockey Sticks


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Bitcoin price chart through June 12, 2017. Until today December 15, 2017, Bitcoin continued its meteoric rise to $17,700. 

The comparisons of Bitcoin to the tulip mania of 17th century Holland  or  Bitcoin’s price to a classic Economics 101 hockey stick are wearing thin.


The classic hockey stick chart

If what we are looking at is truly a bubble then if we are at that point where institutional investors are coming into the market in droves, we should see them being accompanied by media attention, unbridled bitcoin enthusiasm, and greed.  After that, a period of delusion, fear, and despair.  The Naysayers would love that to be the case.

Chart of the classic market bubble showing valuation against time.  As time passes valuations rises to euphoric heights followed by a crash.

But what we are looking at is something more akin to a chart of Facebook membership enrollment which goes up and levels off rather than a rise and fall.  Of course, Facebook didn’t have an eight year warmup period like Bitcoin but once it started to catch on with users, Facebook doubled and tripled in almost every year for the next nine years.

Screen Shot 2017-12-15 at 8.44.42 AM.png

If Bitcoin is the new currency to replace US dollars then what we’re witnessing is people accumulating Bitcoin as they would cash.

How much cash do you have on hand? If you’re like me you have enough cash in your wallet for a few days and enough cash in the bank for about a month’s worth of expenses.  More than that isn’t necessary since the supply of cash is replenished with a salary check or a dividend [ayment.  If everyone is in the process of accumulating a month’s worth of spendable cryptocurrencies, then the market cap of cryptocurrencies used as cash should go to a trillion dollars.  That’s the amount of money that American’s keep in checking accounts, on average.

At present, the Bitcoin investments can be characterized as speculative. Investors aren’t using Bitcoin yet.  They simply want to own some in the hopes that the price rises.  This will quickly change as folks find ways to spend Bitcoin as they would dollars.


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