Spotting bubbles have become a national passion after dot-come and the housing bubble burst in 2000 and 2008. Moreover, few year back investors use to spotted bubbles in gold, equities, credit, and bonds as well.
Here, I will not discuss b-word here to describe those investments. Accordingly, not even nominate any of them. I will give that division to digital currency named bitcoin.
Bitcoin has all characteristics of a bubble in making. First, it totally new. Second, a digital currency that allows the public to do transactions freely without any second party. Where the transactions are controlled by the proper network of computers.
British journalist Mike Dash in his book “Tulipmania” in 17th-century states; “It is impossible to comprehend the Tulipmania without understanding just how different tulips were from every other flower known to horticulturists in the 17th century.” Same sayings with the internet in the 1990s and about cryptocurrency today.
Second, bitcoin is something scary. Like, both parties took part in transaction process anonymously. Which is being the interest for scams, hackers, and criminals as well. Just like a mystery. Similarly, creator of the bitcoin goes by Satoshi Nakamoto, but it is totally unclear who that person is, or is that only one person?
It reminds the bubble in 1720 at the height of the England South Sea bubble, a company floated shares “For carrying-on an undertaking of great advantage but no-one to know what it is.” Definitely, investors do not stop investing in the company.
Third, the thing which makes the bitcoin susceptible is its value. An investment in Bitcoin gives the return of 351 percent annually inspection in July 2010 through Tuesday. To put that in standpoint, investment of $100 is equal to $3 million today. It’s totally an insane return from any investment.
Riding the wave
In 1720, a share price of the company South Sea rose up to 400 percent within three months and collapse quickly.
Bitcoin is not different from other commodities like gold, oil, vegetables etc. Nevertheless, government and currency market exchanges are standing behind the system. Whereas, with the commodities, investor hold the something at the end of the transaction process. However, bitcoin is something more speculative because it is a digital money.
This treatment is not only with all the investments. A shareholder is enabled to share the company’s assets, sale and purchase transactions. Same as bond’s payments of principle and interest.
This division of value allows many observers to warn that internet stock in the 1990s. In addition, during the housing bubble mortgage bonds were not safe. Similarly, this sort of statement is not possible about the bitcoin.