Ever heard this one?
Bitcoin – it’s just a bubble! It’s going to crash! You’re going to lose everything!
Well, they’re right. It’s absolutely a bubble. It is going to crash. Many people are going to lose everything.
Am I worried?
No, not really. Here’s why.
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The Bitcoin bubble we’re in, it’s not the same bubble as 3 years ago. That bubble already crashed, and we’re in a new one (and we’ll have another, and another).
These bubbles aren’t a flaw of Bitcoin. They’re a benefit.
Volatility in crypto is expected, due to the ease of finding leverage. With a simple Binance account, I could open a position 10x my net worth by tomorrow. Since millions of other people can do this too, the price is obviously prone to pumping stupidly, crashing stupidly, and eventually everyone gets shaken out. Some make millions, some go bankrupt. Millions of accounts get liquidated.
That’s good. That’s exactly what’s supposed to happen.
Of course, banks and hedge funds have been doing the exact same thing in traditional markets forever, the difference is when they get caught on the wrong side, they don’t get liquidated. They cry to the government, maybe give the Fed chair a box of cuban cigars and he prints them a trillion dollars.
Good for banks I guess, but what happens to the bubble now that it wasn’t allowed to crash? It gets bigger.
This is possible because the USD is unbacked, you can print a trillion out of thin air by pushing a button in the Fed office. You can’t do this with Bitcoin. It has intrinsic value, because it is backed by something valuable (some would argue, the most secure backing a currency has had, ever), you can’t bail out the bubble. Even with a trillion dollars you can’t print Bitcoin to bail out a bubble. You can only mine as much as the algorithm will let you (which is not much), and no matter if we’re in good times or bad times, it will continue to spit out the same small number of coins every 10 minute block.
This means every bubble is forced to pop.
Those that got caught over-leveraged lost everything. Good.
Those that didn’t made a lot of money. Good.
The tide goes out, and we see who was swimming naked.
The bubble popping is always a good thing.
So what’s going to happen in this current bubble? Same thing that happens every bubble. Bitcoin will pump stupidly, maybe 65k was the top, maybe it will go to 100k. I don’t really care, and neither should you. Assets always settle at fair value eventually, and based on fundamentals the fair value of a coin maybe doubles every 3ish years.
At a guess, that would see us bottom at maybe 12k, or double what we bottomed at 3 years ago.
2x in 3 years? Bank it.
And then in a few years, this will happen all over again.