Jan 23, 2018

Apple and Amazon were once considered to be bubbles. Stop the #bitcoin FUD!

Every time bitcoin would reach new highs, especially last year, there would be a dip and it would come back stronger than ever. As the price of bitcoin continued to grow, more and more so-called economists like Paul Krugman would proclaim that bitcoin is in a bubble and will burst at any time!

Well, let's take a look at a couple of other so-called bubbles in the past. Here are two charts that showed Apple and Amazon to be in bubbles during the big "dotcom boom" of the late 1990's, and look at where those companies are now!

H/T Reddit

Here is Krugman on bitcoin from Business Insider:

Well, the thing about bitcoin is there isn't actually a whole lot of stuff… there's not — in a way the fact that it's completely untethered to anything real means that it doesn't fall until it … it can just hang there in mid-air for a long, long time. There's no obvious real — it's not like, you know, the housing crisis. If housing prices are unrealistic, then more housing gets built and you can see it. Bitcoin — the cost of producing of new bitcoins has gone crazily high. So that's not going to happen. So we're waiting for a Wylie Coyote moment. You know, the cartoon physics, he runs off the edge of a cliff and it's only when he looks down and realizes there's nothing under him and he goes ... So we're waiting for that sort of thing to happen. And that can go on for a long time. You know, a bubble is a natural Ponzi scheme, that's how Bob Shiller puts it. That it's — as long as it's going on everybody who bought in keeps making money and it looks good, and the fact that in the end somebody's going to be left holding the bag. Everybody assumes it's not going to be them.

Is he right? I suppose only time will tell, but here is what he said about the Internet in 1998:

The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.

He was clearly wrong about that wasn't he? Cryptocoin enthusiasts, that see the value of the technology, are a lot more like the dotcom pioneers in the late 1990's than people like Krugman are considering.

Krugman was not just wrong on the Internet, he was wrong about Metcalfe's law. The interesting thing about it is, that many believe that the value of bitcoin can be measured using Metcalfe's law!

Check out this video:

With all this being said, my guess is that Krugman will be wrong about the cryptocurrency revolution just as he was about the Internet. What do you think? Let us know in the comments.

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