Shortly after posting my previous article, there was what was gleefully reported by many as the big Bitcoin crash (most notably this blogger here who debated me briefly in the comments of my blog). The amount of fear, uncertainty, and doubt being thrown around is nothing short of insane.
The problem with markets is that you can’t tell if it’s just a bubble popping, a crash, or a correction even while it is happening. People jump on one of the bandwagons, or they remain on the sidelines silently watching the debacle.
With Bitcoin we must try to take all factors into account. Why did the price crash? What was behind the whole thing? Was it a panic sell-off? All these questions, and more, I believe can be answered by objectively examining the facts.
The blogger who posted here, is quoted as saying:
“So what now for bitcoin? It will crash and disappear like Pets.com, Leheman Brothers and Anglo Irish Bank, existing only in the memories of economists. I’m sure libertarians will still argue about it on reddit, but for all practical purposes it will be dead. The price of bitcoin will drop just as it did after the last bitcoin bubble, its only a question of how long it takes.”
However, what I find most interesting is that in his entire article, he posts many graphs and charts showing similar bubbles to the one Bitcoin experienced. In all these graphs, however, we notice that the price never dropped to nothing. Also, after the last Bitcoin bubble, the value rose and rose, contrary to what he is saying here.
Here is one of his graphs for Nasdaq that apparently shows a bubble:
Notice how, after the “crash,” the value steadied out at the midway point in the exponential rise. Haven’t we seen such a “crash” before in Bitcoinia? Why yes, we have. Here’s a graph showing the last Bitcoin bubble, and the resulting value after the drop:
How then can he make the claim that Bitcoin will crash and disappear? If it is indeed like the bubbles he shows on his blog, then wouldn’t Bitcoin look like the graphic taken from his own website?
It truly makes me wonder how someone can predict that Bitcoin will fall to $0.00 and become worthless when, in the very same article, he shows that bubbles rarely result in a crash to worthlessness. It seems to come off as disingenuous to me.
What is the motivation behind posting such an attack on Bitcoin? Why does a bubble popping have to result in Bitcoin disappearing entirely? Well, you see, that’s the connection that no one who posts such articles will ever be able to make.
Granted, he did try to make the case that since Bitcoin is only a speculative commodity then the bubble popping will cause it to crash and burn. While I see that an argument was attempted, all points used to try and prop up this assertion end up falling flat.
For instance, here is a quote where he attempts to point out a flaw in the “Bitcoin commodity:”
“Without a government to stabilise it, it will continue to fluctuate wildly into a death spiral. A unregulated market is open to manipulation and many claim this is behind “Black Wednesday”. Bitcoin was meant to show how the market can succeed with no government involvement, but instead it showed how crucial the government is.”
This is just silly. The government doesn’t need to “stabilize” anything. The reason the price dropped was because all the weak-hand speculators jumped ship. If Bitcoin isn’t just a commodity, but also an entire payment system in itself, then pure speculation doesn’t run the show. So, what does the author then attempt to do? Well, he tries to paint Bitcoin as a commodity and not a currency so that his point isn’t easily refuted:
“The fundamental problem with bitcoin is that it is not a currency. Currencies exist to be used, traded as a medium of exchange and a store of value. Bitcoin on the other hand has been used for speculation, gambling and hoarded. It has stopped being a currency and become a commodity.”
Here he makes a bald assertion that Bitcoin is only being hoarded, gambled away, and speculated on. That, in his mind, means that Bitcoin is not a currency… but it is rather a commodity. What?
What about the rising number of businesses accepting Bitcoin as payment? What about bitspend.net, a website you can use to purchase anything from any website with Bitcoin? I’m not really following his logic here. Also, here he is again trying to make the argument that deflation is bad:
“This problem goes to the core of bitcoin and the fact that it has a fixed supply. When the value of bitcoin is rising, the price of everything else is dropping. Therefore it makes little sense to buy anything, because it will be cheaper later. So instead people hoard bitcoins, which drives the price higher.”
Are you kidding me? So, in the thousands of years that gold was used as currency, people hoarded it instead of spending it because gold was deflationary? He makes absolutely no coherent argument in support of his idea that a deflationary currency will cause everyone to not spend a dime and die hungry because they don’t have food in their stomachs. This sort of hyperbole is not only dishonest, but it is dangerous to the readers who aren’t well informed.
So there we have it… it will only crash if it isn’t a currency, because if it were then it would still have usefulness at any price. Since it is a complete payment system in its own right of the kind the world hasn’t seen before, then it will continue to have lasting usefulness. Therefore, the whole argument that the bubble getting popped means that Bitcoin will die remains an unfounded assertion, and nothing more.
What could someone have to gain by posting a bald assertion and trying to make it look like an informed argument? Let’s look at several quotes from his blog:
“You see it is best to view bitcoin as a giant experiment of how an economy would operate without a central bank.
The crash revealed a lot of flaws in bitcoin, particularly its deliberative choice to be unregulated.
Collapses like this happen in real stock markets. However, they are usually saved by the central bank intervening to guarantee the price or by a government bail out. However, the whole point of bitcoin is that there is no government so there can never be a bail out. It was designed by people who worship the supremacy of the market and argue that the government is the cause of all crashes. In this ideology the government is a parasite on the rest of the economy, and if left alone the market will naturally soar.
Bitcoin was meant to show how the market can succeed with no government involvement, but instead it showed how crucial the government is.
The belief that we are better off without central banks is regularly asserted, but until now, untested. Well, we have created a market with no central bank or government intervention and the result is a speculative bubble and followed by a spectacular and volatile crash.
As there is no stabilising force to save the currency it will crash and burn.
Decades in the future, there probably will be an online currency acting like a financial Esperanto. crucially it will have to be backed by some sort of Central Bank who will intervene in the market.”
Well, there you have it. His whole unfounded argument that Bitcoin is going to crash and burn because it encountered a bubble is not only easily refuted by pointing out that Bitcoin is not just a commodity, but it also appears that he has a goal in mind: to make it seem as though governments need to be involved in a money supply or it will fail.
That is the entire reason for his post, and, as we’ve examined, his point doesn’t hold up very well. Expect the conspiracy against Bitcoin by the banks and governments to ramp up as Bitcoin gains in popularity. The only way they can kill Bitcoin now is if everyone believes the misinformation and hype.
Don’t buy into the claims that Bitcoin is just a commodity, that lack of government regulation is what caused the fall in price, or that a deflationary currency would never work for society. That’s what “they” want you to think. It’s too obvious.