The Bitcoin Bubble: It’s Not Different This Time

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I’ve seen many a bubble in my time. When I first started investing back in 1995, this little company called Iomega was soaring big every single day. It was the big name in “mass storage” for computers, with their ZIP and JAZZ drives that had discs that could hold 200 MB of data. Never heard of Iomega? You can guess why.

We saw the dot-com bubble, where companies that made no money and barely had a product saw their stocks rise hundreds of percent, only to crash later.

Bitcoin is today’s bubble. I’m going to explain why using charts, but also using bitcoin itself.

Bitcoin is vapor. It doesn’t exist. Nor do any other cryptocurrencies. It’s a virtual currency. The only reason it exists or is transactional is because a very small group of people globally have decided that it is fungible. It’s based entirely on trust and that a market of some kind will always exist for it.

See the problem? What happens if trust is undermined?

The analogy to the dot-com bubble seems clear. Companies that didn’t have products but had a “.com” in their names saw their stocks soar. Bitcoin’s alleged value is also skyrocketing.

The other problem with the bitcoin price is that, like all illiquid investments, its price is not only highly volatile, but can move huge amounts in any given day.

Add in the fact that momentum speculators are now involved, and the media is screaming about bitcoin, and you have what amounts to a stock with very few shares rapidly changing hands, and the bitcoin price soars as a result.

Don’t believe me? Look at this chart comparing transaction volume for the largest credit card processor, Visa Inc (NYSE:V), and bitcoin:

The Bitcoin Bubble: It’s Not Different This Time
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Back in the dot-com bubble, the next group of stocks that took off were “internet incubators.” These were companies that owned pieces, or all, of companies that were not yet public but which were driven by some aspect of the internet. Those companies went nuts.

Now we are finding that all these nothing companies and penny stocks that are somehow getting involved with bitcoin are being bid up to ridiculous heights.

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