The Crypto "Bubble": Tulipmania 2.0?

How many articles do we read speaking of how the cryptospace is in some bubble?  Where the "experts" like Mark Cuban or Vinny Lingham simply struggle to see why growth is happening and is not stopping?  

Is there speculation at work? YES. 

Will there be incredible volatility? YES. 

Does that mean Bitcoin or other cryptos cannot be or become a store of value? Absolutely NOT. 

Are Cryptos like Tulip Mania 2.0? ARE YOU STUPID?

Let's dive further into the topic, shall we?

(1) Value Creation: Tulipmania != Cryptocurrency Bubble

The first real bubble documented is from the 1600's when the prices of Tulips skyrocketed and an individual sold 12 acres of land for 1 bulb. Let that sink in for a second. 12 acres of land, by today's standpoint can range from $24,000 of U.S. farm land up to $2.4 Million for major urban locations! Would you pay that much for a tulip bulb? The likely answer is no. And why is that? 

Simple. There is no current or future value being generated by Tulips. The value was pure speculation.  The Cryptocurrency space is creating value that we cannot even foresee. Entire industries are sprouting up to support the space. From legalization of Bitcoin in Japan to harnessing the power of distributed computing power to perform complex calculations like through Golem or Gridcoin, the potential for blockchain technology and the cryptocurrencies sitting on top to positively impact society is huge. 

(2) Market Sizing: Dotcom Boom/Bust != Cryptocurrency Bubble

Another common Bubble comparison is with the Dotcom bust of 2000. Valuations for new startups were HUGE. Investors were throwing money at anything that remotely worked on top of the new-fangled World Wide Web. (Though it does feel very similar to the current ICO (Initial Coin Offering) space and that will be a discussion for another article.) 

Let's go over market size here using the New York Stock Exchange and Forex spaces as examples.  

NYSE: The largest U.S. stock market exchange grew from $9.1 Trillion in 1995 at the start of the dot com boom to $17 Trillion in 2000 during the bust. Today it is over $25 Trillion! The cryptospace? $100 Billion. 250X smaller! Two key points here:

1. Domestic versus a Global market. The  NYSE and remaining U.S. stock exchanges are capped largely by the handful of companies that participate on the exchanges. It does not include every company in the U.S., and includes few international entities. That means that the market cap is limited because not everyone can participate in it, both as business entities and as investors. It is largely a U.S. play. The crypto space has no such limitation. It is open to anyone who can generate a cryptowallet. It is a truly Global marketplace. Whereas Roughly 150 Million Amercans invest in the stock market, Billions can and will be able to rely on Cryptocurrency.
2. Market Cap potential. With the Cryptospace being 250X smaller than the NYSE, do we think we've even come close to reaching its potential size?  Again the NYSE is $25 Trillion in market cap. Crypto is $100 Billion. To think that the crypto space's potential is at its peak or even close to it is short sighted at best. 

Forex Market: The Foreign Exchange market sees daily volumes of $5 Trillion traded. Cryptocurrency, by comparison, is does around $5 Billion. 1000X smaller. That's 1/10 of 1 percent of the Forex volume. As this space grows it isn't hard to believe that volume might represent 1 percent of the Forex space, and from there perhaps even 10 percent. Again, the potential for growth is massive, because we are dealing with a Global disruptor in the currency space

(3) Volatility != Cryptocurrency Bubble

One of the core issues experts have with the space is how volatile it is. Let's have a quick look at the Forex space. One of the biggest concerns there is that there is very very little volatility now. Gains are falling. As volatility falls, trading volume falls making it far less interesting to be in. That's where the cryptospace can further ignite interest. Sure, speculation is part of the game, but that isn't a bad thing. It gets people excited to participate, and allows them to learn more about why the space actually has value and how it can create economic incentives.  It's a form of marketing that gets headlines, and that's what we also need.  Beyond that volatility highlights the fact that we are in an immature market, one that is nascent and with the umbilical cord just removed. It is trying to find its place.  

As yourself, if Cryptocurrency was stagnating and barely budging, would we even be talking about it? Would it grow at all? Would it ever be relevant? So yes, we need volatility. And volatility is good. But it does not mean we're in a bubble. 

Investment vs Currency. How about both? Does that sound like a Bubble?

The final point we'll make here is that a single crypto asset can serve as an investment tool, a safe haven, and for transactions. It is not limited to just investors and that means the economic value creation can be massive, for both those who use it and for businesses built around it. This is not bubble material. This is disruption.