Global housing markets, stock markets, cryptocurrency markets, you name it — everything is at record highs today.
What else is at record highs? Debt.
It is still folly to think any market is primarily operating under fundamentals rather than leverage-fueled speculation.
The cryptocurrency bubble is interesting because it has the persuasive promise as a safeguard against these inflationary bubbles caused by lax lending, record debts and fiat currency. While it propels itself to stratospheric valuations by convincing speculators of this notion, it is at this value because of the cheap money supply it vowed to protect against. It’s a paradox.
BTC is flirting with $10,000 USD per coin at the time of this writing. Certainly a huge jump from less than a few months ago when BTC dropped more than 30%.
As a thought experiment, let’s assume Bitcoin is eternally the prevailing cryptocurrency, outshining the onslaught of existing alternatives like Monero, Ethereum and LiteCoin, and any of the future infinite cryptocurrencies. Let’s assume that fiat currency has been replaced entirely with cryptocurrency and eclipses any other medium of exchange like precious metals. What can we expect in this future?
While electrical blackouts for any period of time may be devastating, Internet blackouts become far worse. It’s no longer just putting off watching that Netflix or YouTube video, or making that phone call instead of e-mail. It’s now putting off your next meal because you can’t pay for groceries.
Worms, viruses and malware were annoying before, but they would become rampant with the ability to shut down the economy of entire countries. As a result, nations would have to devote huge amounts of resources trying to protect against attacks while simultaneously wanting to research and develop these digital weapons to inflict on others.
A large fraction of the world’s population can barely troubleshoot a technical problem without consulting help. Call centers in India will be jammed with senior citizens asking where all their Bitcoin went. The entire population of India may become one giant technical support call center.
Ransomware attacks would not just primarily be for businesses anymore. It will be highly lucrative to target the average joe. The massive increase in isolated phishing and ransomware schemes will require a new special “Internet police force” to handle all the cases.
How does blockchain protect against “blind mules” and money laundering schemes when you are essentially robbed of all your life savings through the aforementioned means? Does anonymity completely disappear trying to battle this, whereby every transaction now has to be monitored by “authorities”?
There are too many other practical problems unconsidered in the Bitcoin dream scenario, aside from the technological shortcomings as well (most notably the inability to scale usage efficiently). How these fundamental problems are being ignored or rationalized away is quite the feat in human psychology.
To paraphrase a line from Scott Adams: persuasion is what matters in this world where logic and fundamentals don’t matter. To paraphrase Benjamin Graham on economics: trade psychology in the short term, and invest in fundamentals for the long term. So for now, let’s keep the hysteria going! Last one holding the hot potato loses!
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