Originally posted on CCN, republished here with light updates (the markets shifted a little since it was published).
That rally marked the third-biggest 24-hour move in bitcoin’s history and sent the cryptoverse into a frenzy. Bears turned into bulls. According to TheTIE, bitcoin-related tweets popped 50 percent. Blockchain stocks zoomed higher.
Some say this latest pump confirms the bull market. Next stop: $20,000.
What if this isn’t a new bull run? What if this is one last FOMO by exhausted enthusiasts—the last gasp of a dying technology?
Don’t get the wrong idea—I believe in bitcoin and cryptocurrency. I wrote a book about a country that runs on cryptocurrency!
I really want it to succeed, and I think it will. Nothing would make me happier.
I have found that when everybody expects something to happen, it usually doesn’t.
Before we get wrapped up in the coming bull market, can I offer a contrary view? “Eyes wide open,” as they say.
Lightning Network has lost 25 percent of its channels since July 2019. Capacity has fallen 20 percent, and the overall rate of growth has slowed significantly.
Despite spiking up over the weekend, Google Trends shows bitcoin searches remain barely as popular as they were during the late 2018 “crypto winter.”
In the largest global survey of cryptocurrency sentiment to date, Crypto Radar found overwhelming numbers of people plan never to buy bitcoin. Barely any plan to buy it at all.
In a separate report, Grayscale found 75 percent of all investors still associate bitcoin with crime.
Did you see what happened this week? @rj_killmex did:
We all expect mass adoption, but after more than ten years almost nobody uses bitcoin as a peer-to-peer electronic cash system. Its advocates now call it a “store of value,” which basically means “buy it because the price will go up.”
A hammer searching for a nail
For sure, bitcoin matters for many people. But its market is totally speculative.
In speculative markets, facts don’t matter. It’s all sentiment. When people see bitcoin’s price go up, they buy. When people see bitcoin’s price go down, they sell. Nobody stops to think about what’s really going on behind the prices.
Substantively, nothing changed when the price moved from $3,200 to $14,000. No great innovations, no big developments, no mass adoption.
We have Lolli, Lightning Network, smart contracts, side chains, Bisq, altcoins, and dozens of other innovations from developers and businesses. Is it possible they’re working on technology and services nobody’s asking for, all in an attempt to force bitcoin into the mainstream?
If bitcoin’s so great, shouldn’t it have come a lot further by now?
And for all the progress we’ve made, what does it matter if we are only trying to figure out ways to make ourselves rich?
But, but . . . the bitcoin halving!
You may expect bitcoin’s price to explode when the halving hits next year.
After all, the market’s already absorbing 1,800 BTC each day. When you cut that number in half, prices will have to go up!
What makes you so sure that will happen?
But, but . . . institutional investors!
You may think bitcoin will boom because large investors have started buying it and investing in other cryptocurrency ventures.
Let’s put that into context.
Institutional investors hold at least $22 trillion in US-registered investment funds, much more abroad and unregistered. To date, they have put almost none of that money into bitcoin. VC investments dropped over 50 percent from 2018 to 2019.
Bakkt? So far, it’s done about 1,100 contracts on its best day. CME does about 2,000 on an average day. Compare that to the 240,000 daily volume for the Dow’s “e-mini” contract.
Fidelity? When it finally opened its cryptocurrency custody platform to the public this month, its CEO said: “it’s not really that big of a deal.”
Peter Thiel, a Forbes 400 billionaire, recently put some money into a renewable energy bitcoin mining farm. His stake is probably about $2 million, certainly less than $50 million. That’s pocket change for a guy who’s worth $2.3 billion.
Jack Dorsey, the multi-billionaire Twitter CEO and bitcoin champion, buys $10,000 of bitcoin each week. Over the course a year, that’s only 0.02 percent of his wealth. His bitcoin development team consists of only five people, and Square Cash makes up a tiny portion of his business portfolio.
Harvard bought $5-10 million worth of tokens from Blockstack, a new dApp platform, and everyone went crazy.
For Harvard’s $38 billion endowment, $10 million is literally a rounding error—it’s .00000025 percent of the total endowment. That’s like a millionaire buying $2.50 worth of bitcoin or your average American plunking a dime into a crypto tip jar.
But, but . . . bull market!
Every bull market starts the same way: darkness followed by a bump up, drop down, then explosion. You see this in all markets over all time periods. It takes months—even years—for people to realize what’s going on.
Sometimes, though, that bull market is really just a long, drawn-out bounce.
Consider Japan’s stock market.
Look at the log chart of the Japanese stock market since 1950:
Compare that to the log chart of bitcoin over the past 10 years:
Pretty similar, right?
Obviously, Japan’s stock market is dying a slow death. It’s been limping along since 1990, propped up by massive government intervention. In fact, it’s still down 45 percent from its peak.
You just didn’t realize that because for most of the 21st Century, it’s gone up.
How long do you think that will continue?
This is caution, not FUD
Unlike global financial markets or dying industries, no government has yet propped up crypto with subsidies, easy credit, tariffs, bailouts, or quantitative easing.
This means we can deal with facts.
In fairness, bitcoin still has a lot going for it. Look at the bigger picture:
- Hash rate and mining difficulty continue to break records.
- Daily transaction volume has reached all-time highs.
- Cryptocurrency projects continue to advance at an amazing pace, often with private backing or deep-pocketed investors.
- Retailers remain very interested in bitcoin payment systems.
- Wall Street continues to edge into the markets.
Also consider the broader financial context.
Our financial system can’t support itself anymore. Every few months, some country sees hyperinflation. Governments keep dropping interest rates (to the point where investors hold $15 trillion in negative-yielding sovereign debt). Many banks do not have enough money to function in the event of a financial catastrophe.
In a year, we may see mass adoption of bitcoin and that $1 million price tag John McAfee keeps talking about. Nobody knows what the future brings.
For now, let’s keep a level head. Bitcoin still has a ways to go, and reality is more nuanced than “price go up—good! Price go down—bad!”
Many paths to success
Most technologies take time to move into mainstream adoption. Often, they fail before they get there.
Fifteen years ago, Segway flopped (literally). Now, its technology is everywhere.
Blackberry, not so much.
Don’t FOMO the pumps and don’t sweat the drops. Bitcoin is no sure thing. A little healthy skepticism isn’t the worst thing to have.
Mark Helfman is a top writer on Medium and Quora for cryptocurrency, finance, and bitcoin topics. His book, Consensusland, explores the social, cultural, and business challenges of a fictional country that runs on cryptocurrency. In a past life, he worked for Nancy Pelosi.