Bitcoin‘s underlying software code was split on Tuesday, generating a new clone called Bitcoin Cash. Many write that the cryptocurrencies market is a bubble that will soon burst. Do you agree with this opinion? How do you see the future of bitcoin and other crypto-currencies?
I do not believe that cryptocurrencies are a bubble. In fact, after years of skepticism I finally feel Bitcoin and the rest of the crypto market is ready to take the next step in the evolution of both financial markets and the internet itself.
Most people suffer from ‘normalcy bias.’ This is when we dismiss changes happening around us because they are too far outside our normal frame of reference. We bias our analysis of events based on what has happened in the past and the most likely outcome day-to-day.
Normalcy bias isn’t a bad thing. In fact, it’s an important survival trait under predictable circumstances. But, adherence to it during chaotic times can be devastating. Those saying that cryptos are in a bubble are suffering from normalcy bias.
They cannot or will not see that the reason Bitcoin broke out of the fringe ghetto of the internet in 2010 (and I was there to see it), is because our monetary and political systems are becoming rotten and corrupted.
Cryptos are a catastrophic mutation, in an evolutionary biology sense, born out of extreme need to build a better money than the debt-based one currently in the process of failing.
I’m an Austrian Economist. I believe that government intervention into markets is nothing more than barriers to trade which mis-allocate capital and incentivize rent-seeking behavior.
Ludwig Von Mises discussed the ever-spiraling necessity of intervention requiring another bigger intervention and called its apex the “Crack-up Boom.” This is the final boom brought on by monetary debasement that results in a bust so devastating that the entire financial system has to be rebooted.
We are reaching that point in these next few years. It could begin as early as 2018 with a blow-out of sovereign debt in the eurozone and a loss of faith in the European Central Bank and The Fed to control it.
This is what the cryptos are reacting to now. There are large blocks of Bitcoin transactions emanating from Europe that are similar to what happened in China in 2013-14 which sent Bitcoin to $1000 initially.
Simply put, this is capital flight. And it’s draining liquidity from the financial system at a time when deflation is still the dominant force driving markets.
The crypto bull market, which is one of the most powerful things I have ever seen, is the digital canary in the fiat currency coal mine. It is warning us that confidence in the banking system is failing.
Government issued currencies are only as strong as the viability of the governments backing them. When confidence in them fails, so do the currencies. The cryptos are now a $100 billion industry ready to take the next step to relieve governments of this burden.
It’s not just what is needed, it is what’s happening.
With the advent of new blockchain technologies, new cryptocurrencies will be capitalized to solve specific problems or fill particular niches.
Tokens like Steem, which supports a social media platform for content creators and their fans to directly support one another is a perfect example of what’s coming next. Ethereum is one solution for building next-generation distributed applications that can automate and perform common tasks of vital importance – permit issuance, mortgage application, account registrations, etc.
There are others on the way. The most promising one I’ve seen thus far is EOS which is built on a blockchain capable of the kind of transaction density (transactions per second) necessary to operate a large-scale enterprise. This was the reason for Bitcoin’s growing pains and the fork of the blockchain that just took place.
That fork demonstrated to the world that disagreements between parties in this new world of distributed, voluntary systems, can be worked out with minimal pain and no lawsuits.
Quite a remarkable thing just occurred. This is not a bubble, this is an example of what’s coming next. The people screaming bubble are simply talking their book, as always.