Hyper-monetization: Questioning the “Bitcoin bubble” bubble

Bubble and crashes

Bitcoin will get mentioned someplace with lots of readers, a bunch of those readers will like the idea and try to buy Bitcoins, their price will rise, which will draw even more people to “invest”, which will drive the price up even more…until people decide that the price isn’t going to rise any more and everybody rushes to sell before the price drops. I predict there will be between one and five Bitcoin bubbles (price will double or more and then crash back down below the starting price) in the next four years…I think it will be impossible to tell if a bubble & crash is “natural” or “the men in black helicopters” manipulating the system.

Second, A commenter on that post wrote, “I would not call an 80% move a correction…” to which Falkvinge replied, “It is not the downslope that is abnormal, it is the upslope. A value that reverts to where it was two weeks ago is normally a mild correction.”

Peter Šurda

The primary proximate cause of the crash, then, seems to have been the inability of a (currently) key exchange service provider to keep up with demand fed by sudden media attention and buy-in frenzy in the run-up, triggering a classic emotional wave of panic selling, most likely the corollary of the previous heat of emotional buying. The existing trading infrastructure (which is not the same as the Bitcoin system infrastructure) was not ready to scale to such a rapid demand spike. This sharp correction might be viewed in part as the rather ungentle method by which the market realigned itself with the current real-world state of scaling capabilities and business planning skills at exchanges that have been working to build themselves from the ground up.

In the case of a classical terminal hyperinflationary event, the authorities orchestrating it are better equipped and prepared. Ink and paper are ready. Printing presses run and are up to their tasks. More importantly, printing plate engravers are standing ready to carve additional integers, a relatively simple task of creating higher and higher denominations of notes. The technical infrastructure is in place for state money monopolists to completely destroy the value of a paper currency, using “zeroes” to drive it all the way to “zero” and extinction.

Building a new kind of media of exchange for a community of all-volunteer users from scratch through peaceful cooperation, entrepreneurship, coordination, debate, and market ecosystem building would appear considerably more challenging than destroying a paper currency. After all, being constructive often seems more challenging than being destructive; it requires greater ingenuity and long-term persistence and perspective.

For additional articles on this topic, visit my Bitcoin Theory page on this site.