There are a few things that we need to look at when comparing cryptocurrencies to bubbles. First, supply and demand. Second, the market. Third, value of money.
The Adjusted Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks. These data are adjusted for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories.
The cryptocurrency bubble and the tulip bubble have some similarities, as well as some differences. When farmers see the price of crop A increasing dramatically, they have some choices. Ignore the price rise and continue to grow crop B, losing out on the potential gain in income, which some will do. This has no affect on crop A. If they are already growing crop A, then they will be able reinvest excess profits and grow more of their cash crop, crop A. This increases supply of crop A. If they are growing any other crop, and see a price rise in crop A, they will have an incentive to shift from their current crop at the end of the season, and grow a crop that will bring in more revenue (crop A). Increasing supply of crop A. However, increasing the supply of crop A won't happen over night, as crops take months to grow. As crop A grows in value, more and more farmers will continue to reinvest profits in growing the profitable crop, as well as more farmers will switch to the profitable crop (crop A).
As supply rises due to farmers fearing they will miss out on a riches, demand slowly starts tapering off (why buy a tulip for someone when everyone is buying a tulip for someone). When the next harvest comes for crop A, there will be a significant increase in supply for crop A, and prices will start falling. As prices start falling, demand increasingly falls, as more and more farmers need to unload their harvest to pay for the next harvest. The price for crop A falls down to virtually nothing, but farmers are still willing to sell because they need some form of income to buy goods and services on top of purchasing next seasons crops.
The Market
What separates the cryptocurrency/blockchain bubble from other markets is that we haven't seen something like this in the known history of the world. Technology has connected us to a point where information exchanges seamlessly across borders (and now that we have cryptocurrency, so does money). This matters because cryptocurrencies are not listed on an American exchange like the Nasdaq or NYSE. They are not listed on Japan's Nikkei, or even China's Shanghai Stock Exchange. They are not open to only accredited investors from 9:30 AM to 4:00 PM (they are open 24 hours a day, 7 days a week). They are listed on virtually unknown exchanges that operate across the globe. Cryptocurrencies are not for one nation of 330 million. They are open to the entire globe of over 7 Billion people where all you need is an internet connection (you don't need 5G or even 4G, a dial up connection works) and less than $10 (the lowest amount of a bitcoin you can transact with is one hundred millionth, 0.00000001, one Satoshi).
The Value of Money
The value of money will always affect bubbles. Looking at the Dotcom Bubble that popped in 2001, we will consider the value of the USD (and other currencies since most of them have also devalued since then).
In 2002, just after the Dotcom Bubble popped the total sum of US currency in circulation was 668.972 Billion dollars. Compare that to today, where we are at 3.902 Trillion dollars. That is an increase of ~483%. Which means that for every 1 USD you had in 2002, there are now 4.83 additional US Dollars in circulation. Since the Dotcom crash, we have increased the circulating supply of US Dollars by just under 5 times.
The reason that there is a similarity is the tulip bubble and crypto bubble is because anyone can rush in a create a useless scam coin. There is virtually no barrier to entry in the cryptoverse. There is, however, scarcity of certain coins which limit the supply of the coin (there is room for inflationary coins such as Dogecoin/Ethereum). Scarcity is why we compare Bitcoin and other cryptocurrencies to precious metals. Scarcity is what gives gold value. Tulip scarcity is what launched the tulip bubble off, while supply surplus is what crashed it.
The idea behind a currency with no borders is what gives cryptocurrencies a market that is unlike any market we have ever seen. This isn't about American tech stocks. This is about global currencies and a frictionless economy.
Central banks are constantly waging a silent currency war. China has been known to devalue their currency so their exports are more desirable on a global scale. The US had to pump trillions of dollars into the economy after Americans became careless (I'm not just blaming banks and the SEC, I am also blaming the people). Money has lost its value since the Dotcom bubble, and in 2017 alone, we have witnessed a drop in the USD of ~10% against a basket of currencies to increase American exports abroad.
In the Cryptoverse, there are still many coins that will fail. The general consensus is that 90% of crypto assets will fail, and I agree with that number.
follow on twitter @postmattern and @CrypTokenNews
In the Cryptoverse, there are still many coins that will fail. The general consensus is that 90% of crypto assets will fail, and I agree with that number.
follow on twitter @postmattern and @CrypTokenNews
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