Bitcoin; something to get excited about or just a bubble?
It is the hot subject most payment and non-payment experts are talking about: Bitcoin and whether it is a bubble or not. A lot of people ask our opinion at PaymentGenes. This is not our direct area of expertise. However, our founders come from classic payment companies such as Adyen, GlobalCollect and Braintree. As a result, we continue to look into the Blockchain/Bitcoin technology ourselves.
With an increase in value from $800 up to $16000 within one year, Bitcoin does have parallels with previous financial bubbles. Most of them were driven by new technologies (internet in the early 90s, or the financial technologies and financial engineering that caused the 2008 crisis). Funnily enough, the alleged bubble of Bitcoin is driven by both. Because of the enthusiasm these new technologies create, people find it hard to predict what the eventual effects on society are likely to be. More and more people see others getting rich from buying Bitcoins. The effect will be that other people hop onto the Bitcoin train as well. After all, who wouldn’t want to get insanely rich by doing absolutely nothing?…
“More and more people see others getting rich from buying Bitcoins.”
What those people do not realize, however, is that with more and more investors will eventually come a market panic as well. This market panic will lead to a market crash in the end. We have seen this in 2008, for example, with the latest financial crisis. Prior to that, it happened several times in the previous century, all the way back to the Crash of 1929, which led to the Great Depression of the 1930s.
How safe is the Bitcoin?
Another problem is that fanatics spread stories about the Bitcoin that are not always entirely true. The biggest example is stories around security and so the safety of your money. Believers will always say Bitcoin is the safest way to invest your money, because of the decentralized system on which it is based, etc. However, experience shows that accounts do get plundered by internet criminals; even entire Bitcoin-mining platforms get robbed. Because of the current high value of the Bitcoin, it is very attractive for hackers to break into your allegedly safe account and steal the millions of dollars’ worth of Bitcoins that you currently possess. Of course, this is not a direct sign of a bubble… However, it is a big hazard for the well-being of the cryptocurrency.
“Unfortunately, I will have to work just as hard as in the past to get rich.”
To come back to the question; is the Bitcoin a bubble or not? I think it most definitely is a bubble. For this reason, I will not invest in Bitcoin. Unfortunately, I will have to work just as hard as in the past to get rich. On the other hand, in my opinion the euros I will earn with such hard work will last longer than the Bitcoins I would buy now.
Written by Casper Waalkens
Payments Consultant, DACH region at PaymentGenes