Since 2013 I have studied how people view Bitcoin, cryptocurrency, and the blockchain. In 2018 I would describe the overall view as bullish. Multiple negative perceptions have plagued Bitcoin since 2013 including the idea that Bitcoin is used for crime, is a scam, and is a bubble. Although this entire space remains the underdog and in an uphill battle for respect and adoption, positive perceptions are clearly on the rise.
The Past Two Years: 2016 to 2018
The popular view of Bitcoin is changing, mostly because of the new politically correct term called blockchain. One reason people’s love for Bitcoin is growing is that more and more organizations continue to adopt blockchain technology such as IBM, Walmart, and Nokia. In addition, other prominent groups continue to explore and advocate for blockchain’s utility, such as the United States Department of Defense, Maersk, and United States Senators and Congressional members. As blockchain adoption increases, so does the credibility of the first application of blockchain: cryptocurrency. Gone from the headlines are ‘Bitcoin is for drugs,’ but those beliefs still run deep among most people who have not yet adopted cryptocurrency. Nonetheless, as the use case for cryptocurrency expands, and as the numbers and credibility of the groups who support it expand, it becomes less popular to attack the people who use Bitcoin.
The latest mantra that is fading into the past is ‘Bitcoin is a scam.’ The death of that particular slogan is much more closely tied to the rise in the value of cryptocurrency itself and the increased attention from both regulators and financial professionals. If regulators are not dismissing the entire market as a scam, which they are not, the blanket “scam” argument loses power. In addition, as reputable investment firms adopt blockchain to track financial transaction such as the Australian Stock Exchange or start to trade directly or indirectly in cryptocurrency, the scam argument again loses power.
The latest anti-Bitcoin message that is yet to die is the notion that ‘Bitcoin is a bubble.’ Although I am not a financial professional I find the bubble discussion disingenuous. Yes, Bitcoin has risen very fast many times and that is one characteristic of a how financial experts detect and define “bubbles.” But sharp upward price movements do not always qualify as a bubble. There are other key criteria that must also be met. The other part of the definition of a “bubble” is that the price moves much higher than its “intrinsic value.” According to Amy Fontinelle of Investopedia, “a bubble has formed when an asset’s price has increased to well above its intrinsic or fundamental value.” It is this second part of the bubble definition that the Bitcoin critics seem to ignore.
I believe it is not possible to define the intrinsic value of Bitcoin, nor is it possible to define the intrinsic value of any form of money. While everything of value does have intrinsic value, the intrinsic value of a currency is difficult to define. That is the point of fiat currency where the value is artificially imposed through various controls in order to enable a replacement for trading actual items of value. Specifically, a government-backed currency’s value is based mostly on that government’s ability to control the currency (printing, setting interest rates, tariffs, etc.). Absent those controls, what would a US dollar be worth? We do not know. Bitcoin’s supply is tightly controlled, but that is it. There are no government set rules applying to Bitcoin that would impact price other than taxes, but taxes are not specific to cryptocurrency. Another point to consider is that governments only tax activities where value exists. So, for all those who claim Bitcoin has no intrinsic value, the governments of the world and the markets say otherwise.
In terms of the ‘bubble’ status of Bitcoin, we are still left with trying to define the actual intrinsic value before we can adequately decide if Bitcoin is a ‘bubble.’ Logically, if the intrinsic value of Bitcoin cannot be defined, the use of the term ‘bubble’ when referring to Bitcoin is, in fact, a deeply flawed criticism. Based on the data, I would suggest the intrinsic value of Bitcoin is much higher than its current price, but that is for the markets to decide, and is not something anyone actually knows. Therefore, Bitcoin is not a bubble! If you disagree, I say “prove it!”
Because this particular mantra that Bitcoin is a bubble is based on bad data and false assumptions, it may never go away and I am not sure it should. The one good aspect of the bubble label is that it prevents the most risk-averse people from buying into what is absolutely a volatile market. Buying and then watching Bitcoin and cryptocurrency takes resilience and if you are not willing to be somewhat of an outcast and endure the thrills and chills of the price movement, this market is not yet right for you. One day we will all have cryptocurrency in our mutual funds and will not even notice. But today, this is mostly a direct buyers’ market and so consumer sentiment is king.
Perceptions of Bitcoin have improved significantly in the past two years. Fewer people see it as a tool for criminals, fewer people think it is a scam, but many people still fear the wild price fluctuations. Perception progress equals adoption and adoption drives up demand. I am bullish on the cryptocurrency market because I follow the perceptions of the people and more people love Bitcoin today than they did years ago. For more discussion on this topic, find me on Twitter @BitcoinCensus
Featured Image: DepositPhotos/ goami