Is BitCoin Rally a Tulip Mania Part Deux ? History, Tips and Analysis

Introduction

Over last few months, Bitcoin, Satoshi Nakamoto, associated namesakes and competitors have all been in the news. It is entertaining reading on a brilliant innovation. A lot of info is available on Blockchain and Crypto-currency, and the innovation this brings to the table. 

Author Paul Vigna in his book "The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order",  has a brilliant quote

The blockchain keeps everyone honest, and a whole layer of banking bureaucracy is removed, lowering costs.

His brilliant lecture on his book and Crypto-currency is available Youtube. He also states that Crypto-currency's value is real akin to Gold as we hold it valuable. 

Tulip Mania and the richest ever enterprise

Per an urban legend, Carolous Clusius introduced the first Tulip to the Netherlands in 1593 at Leiden. Tulips became immensely popular and at the peak of Tulip Mania (in 1637), Tulips sold for more than 10 times the annual income of a professional craftsman.

Take this for a fact, highest ever valuation for any private firm was for "Dutch East India Company" had an inflation-adjusted peak value of $7.9 Trillion at the height of Tulip Mania. Dutch East India Company still holds the record for the most valuable enterprise ever, like Emperor Mansa Musa I of Mali who had assets close to $400 Billion (adjusted for inflation).

Tulip Mania is considered by most economists to be the first recorded speculative bubble, coinciding with the Dutch Golden Age. The 1637 event was popularized by British journalist Charles Mackay, who claimed that at one point 12 acres of land were offered for a rare variety of a Tulip. Tulip-mania is also the backdrop of a 2017 Hollywood movie of the same name.

Tulip mania Vs BitCoin Mania

Does the #TulipMania resonate with ongoing #BitCoin Mania? There are two schools of thought - One stating this could potentially reach $400,000 at a certain peak and another stating it could crash down to rates below $1000. In either result, risk-taking hedge funds (that is driving a part of the demand) and investors may see an extreme bull or a bear situation. The fluctuation has been so high that in the past 1 month, BitCoin reached close to $20K before the current $13.5K at the time of writing this article. One reason could be attributed to the BTC futures trading starting in exchanges.

Moonshot and the BitCoin Billionaires (and Millionaires)

Let us take the following two examples:-

1. The Winklevoss Twins, who fought a major battle with Mark Zuckerberg over Facebook, have made their first billion, betting big on BitCoin

2. Another long moonshot by an early investor resulting in huge profit. Naturally, the general public and hedge fund managers are attracted by the magnetic pull of crypto currencies.

Given the risks associated with the bitcoin and crypto-currency eco-system, a regulation was on the cards due to risks of criminal exploitation to leverage increasing popularity. China has already invoked this with Reserve Bank of India highlighting the risks associated with Bitcoins. Like any PONZI or a Multi-Level-Marketing (MLM) scam, the number of people getting enticed could be exponentially bigger. 1929 style crash or a depression due to ICO and crypto-currency will be too dangerous for the Chinese and global economy. Even if it happens in 2029, given crypto-currencies are not that big right now.

Having said that, crypto-currencies are not without issues. Given the fact that Bitcoin is not a legal tender in most parts of the world and is being used for underground transactions and for payments associated with ransom-ware, the perception is not that great in the minds of general public.

While the benefits of block chain are unquestionably high, coming to ICO and digital currency, the key question is - is the bitcoin rush a bubble primarily due to the supply-demand inequality? Will regulation of #bitcoin and other currencies help?

Block chain gives an opportunity to build trusted, verifiable and non-forged contracts and trace of currency, transaction flow. Capital markets have done this for some decades now with financial reconciliation processes but have issues due to fragmentation. This Open innovation (Block chain, Crypto-currency, Digital ledgers) makes the standard uniform across player.

Additionally, technological progress with BlockChain is definitely a life-saver with hundreds of outstanding use-cases. It will be helpful in end-to-end irrefutable public record with authentic tracking of multiple items (be it irrefutable authenticity of medicines, products, contracts etc.)

Secure platforms with authenticity and integrity with negligible scope for manipulation. If such a thing emerges, it will be useful to remove corruption and money laundering and make governance a lot stronger. This would be useful in India and other emerging economic hegemonics if used in the right way.

Will the Bubble Burst?

Coming back to the main question, Is BitCoin in a bubble mode? My personal view is - yes it is. There could be a skeptical question of whether it is a bubble at all - as it can be confirmed only when it bursts. Commodities like gold, diamond and platinum grew in value over the years without a bubble. Why can't bitcoin be similar?

The real point is the similarity of supply-demand challenges and a situation very similar to the Tulip Mania. It burst and so can the Bitcoin. The real intelligent traders will use the market movements to their favor and a simple investor can be disappointed if the bubble bursts!

Conclusion:

What's your take on the BitCoin Mania a-la-TulipMania2.0? I hope you enjoyed the content shared. Comments are welcome.

Corollary:-

1. With the growth in #BlockChain Technologies and associated success of #CryptoCurrencies model of #BitCoin and #Ethereum, #ICO is expanding in a very big manner. The growth in 2017 is mind-boggling with some of the big nations and big enterprises either banning or blocking ICOs. 

2. Nice take on the rising popularity of ICO vs. iPO to raise capital. The growth of this wild-wild-west could become regulated soon like the 2008 crash inducing derivatives and financial instruments ? Nice quote from the post "Are ICOs the same thing? Yes and no. IPOs and ICOs are both used by companies to raise capital. The main (and really important) difference is regulation. IPOs are regulated by the SEC and have a set of legal requirements and a formal process for how they’re carried out. ICOs are currently unregulated and more of a “wild west” practice."

3. It is definitely a realistic expectation. The question is are we in 70s, 80s, 90s or new millennium in terms of internet adoption like analogy for block chain. Given the hyperloop style growth , I think we may be in the early years of the second millennium and in a decade a lot will happen #blockchain

4. Very good, crisp explanation on what is #BlockChain, #BitCoin, #Ethereum, #ICO and how the entire ecosystem works with nice info graphical summary by CB Insights . Nice article!

Disclaimer: I am not a trained financial adviser or an expert in crypto-currencies. Please take advise from professionals, if you want to invest. You may want to take a look at your geographic authority (such as RBI etc.) for any recommendations.

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