2017 has been the Year of Bitcoin, increasing from less than $1,000 to more than $17,000 and still going. Enjoy the ride while it lasts, because 2018 will be the year the Bitcoin bubble bursts. Here’s why.
There’s no “There” There
Bitcoin has no intrinsic value. People like to say that’s true of all currencies, but the USD is backed by the faith & trust of the US government and Bitcoin is backed by…nothing. Who’s responsible if Bitcoin gets hacked (which just happened at NiceHash)? What happens if the Bitcoin hysteria evaporates and it loses 75% of its value (as happened with dot com stocks when that bubble burst)? What happens when you go to redeem your BTC & they’re not there any more due to technical error? There’s no “there” there.
Consumer Confidence will Fall
US consumer confidence just hit its highest level in 17 years. When people feel confidence, they invest in speculative bubbles because everything’s awesome right now and of course it’s going to work out. But what happens when we have a recession, which we’re overdue for after 9 straight years of economic growth. In a recession people hunker down and get more conservative, which will be doubly bad for Bitcoin.
Transactions are Too Slow
Bitcoin has fundamental technical limitations that make it ill-suited for the high number of transactions being placed on it now – and this is only the beginning. Think of it like a road that handles traffic just fine on Sunday afternoon but is a clogged, gridlocked mess during rush hour. And now it’s rush hour every hour of every day, with even more traffic coming.
The Energy Cost is Too High
Bitcoin transactions used more energy than Ireland this year, and each Bitcoin transaction uses enough energy to power a typical house for 10 days. Bitcoin used as much energy as 2.8 million US households while VISA used only as much energy as 50,000 households. And this is with Bitcoin processing only a few transactions per second, while VISA processes almost 2000 transactions per second.
The Psychological Barrier of High Price
What are the most popular company stocks? Today some of the most popular stocks include Amazon, Bank of America, GE, Alphabet (Google), Ford, Apple, AT&T, and Pfizer among many other similar brands. These are the kinds of stocks we’re used to seeing on the news and the kinds of stocks we’re used to seeing in our retirement accounts, and they all typically trade in the hundreds of dollars. They’re so committed to staying in this price range that they split their stock to bring the price back down if it gets too high, and people can therefore think about buying several units of a stock they’re interested in. On the other hand, Bitcoin is currently trading around $17,000. So someone who has $1,700 to invest could buy 10 shares of Apple stock at $170 each, or could buy 0.1 BTC. And Bitcoin’s protocol doesn’t allow it to be split, since it’s capped at a total of 21,000,000 BTC. It’s a huge psychological barrier which will keep large numbers of people away from investing.
Unlimited Supply of Alt Coins
And while there’s a limited supply of Bitcoin (only 21,000,000 can ever be created), there are an unlimited number of new cryptocurrencies that can be created, and the recent market frenzy has prompted the creation of hundreds of new cryptocurrencies. There are currently more than 1300 currencies listed on CoinMarketCap, with more coming all the time. This continuing flood of new currencies will continue to dilute the value and price of each individual currency, as always happens in conditions of virtually unlimited supply.
Corporate Cryptos Are Coming
Bitcoin promises to disrupt huge companies, put power back in the hands of the little guy, and democratize access to money. Sounds familiar, because the Internet promised the same thing in the 1990s. It delivered on part of that promise, but the steady direction of the Internet is to become more & more dominated by massive for-profit companies (think Facebook, Disney, Google, Fox, and Amazon). The same will happen to cryptocurrencies, because I’m certain the US government, Bank of America, JP Morgan Chase, and Citigroup aren’t all sitting around boo-hooing that all their prominence and profitability is going away. Look for corporate cryptocurrencies and government-regulated cryptocurrencies (CitiCoin & DollarCoin?) to come soon, which will displace most of the current upstarts. Some current upstarts will turn into the next decade’s behemoths, and Bitcoin might be one of those – but that’s what everyone used to think about AOL & MySpace too.