Why Bitcoin Is Doomed to Fail – Orge Castellano... https://medium.com/@orge/sorry-but-bitcoin-is-...

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Jan 4 · 5 min read

Why Bitcoin Is Doomed to Fail

The bubble will burst, just wait for it

. . .

One thing that we can be sure of is that nothing is too big to fail. During
the past century, humanity has witnessed some of the biggest �nancial
crashes and manias ever recorded. One of the greatest lessons we can
draw from history is that things usually get too big before they blow up.
As it happened back in the 17th century, with the Tulip Bulb’s frenzy,
the dot-com stocks boom in the 90’s or stock market crash of 1929. But,
will it be the case of bitcoin? Are we headed for a bitcoin crash? It’s
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imperative to look at the past to see how the future will unfold.

Bitcoin was created in 2009 after the aftermath of the 2008 �nancial
crisis. A technological marvel aimed to avoid the whole banking
establishment. A disruptive way to challenge �at currencies and
government’s regulation, centralization and control. But essentially, its
creation is fundamentally �awed, with an arti�cially imposed cap, the
supply of bitcoins is permanently �xed at 21 million which itself is a
design devoid of economic sense. An economy needs as much money as
transactions and activities occur within it. So if a lot of people want to
start paying over the Bitcoin network, the value of bitcoins will need to
rise or at best stay at high levels to accommodate such demand.

If bitcoins transactions continue to increase but the amount of currency

ceases to do so because it has a ceiling, then it will su�er de�ationary
bias. That is, each bitcoin will be revalued too much and the prices of
the goods nominated in that currency will then fall, which is not at all
positive for economic activity.

All money needs to do is provide a stable index of value for any and all
goods available on the market. Currencies such as the US dollar are
incredibly good at this, they also act as legal tender back up by central
banks and treasuries. Bitcoin is completely incapable of competing with
well-established �at currencies mainly because its owners prefer to
hoard rather than spend, and this is the primary reason why in the last
couple of months its value has soared up almost endlessly.
Unfortunately, until goods start to get valued in Bitcoin directly rather
than in other currencies then it will never be able to become a currency.
And even if its adoption was needed Bitcoin’s path to mainstream usage
faces many legal, regulatory, and cultural hurdles.

Contrary to what a lot of people think (including �nancial experts and

traders) bitcoin is not a currency but rather something closer to a
commodity. A digital one. Think of it like the digital version of gold
without the intrinsic use of the latter. Bitcoin has all the characteristics
to be a commodity because it’s scarce, portable, secure and durable but
with serious problems.

It is worth noting that the reason people use bitcoin at the moment is
because it seems useful and robust, but they are also over-hyped, madly
driven by the cryptophenomenon sometimes without even
understanding it to its utmost. The value of Bitcoin is mainly driven by
speculators followed by a euphoric momentum brought up by its

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investors. Big players have got involved in the craze and are actively
manipulating the markets through high investment and high sell-o�.
The in�ationary spiral is notorious and it could bring bitcoin to its end.

“Bitcoins are not a real investment; they are bets

inside a casino. If the price goes back up, don’t be
fooled. In thrune parlance of popping investment
bubbles, it’s something called a ‘dead-cat bounce.’
People who are desperate to keep the game going
rush back in, hoping to bring the price back up, but
it never lasts”.—Kurt Eichenwald

However, there are many reasons that suggest that this �nancial
experiment will not have a long run, and that we are in fact in front of
another speculative bubble according to a recent report by the WSJ,
where 96% of economists surveyed supported the idea.

As Hyman Minsky has stated before “anyone can create money: the
problem is in getting it accepted”. And when it comes to a new
currency, the degree of acceptability in question depends on the ability
of the issuer to ensure its adaptability by a wider audience. That is, the
more the issuer has the power to make its currency used, the greater
robustness it will have. That’s why the strongest and most used
currency is issued by the world’s most powerful state (military,
economic, technological and cultural terms) that is able to impose by
force its use: The US Dollar.

The bitcoin boom epitomizes a fundamental phenomenon we’ve been

experiencing in the last couple of years. Our lack of adaptability to new
technological inventions. Cultural angst is not allowing us to bene�t
entirely from all the technological innovation coming along every day.
As Eric Teller, Google’s X research and development CEO has said
“technology is increasing at an ever- faster rate while human
adaptability rises only at a slower, linear rate”. Bitcoin enthusiasts and
investors are aware of this phenomenon and they use it against the vast
majority of us. That’s why cryptocurrencies are so complicated to
understand for some and the primary reason why such technology is
maybe too advanced for our time.
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Historically, bubbles are quite hard to predict, yet it’s safe to state that
bitcoin has all the telltale sign of a playbook bubble. First, its recent
astronomical gains and slumps from last year where its value slumped
to below $11,500 at one point last December losing more than a
quarter of its value in just a day, at the same time its price soared by a
record of 1,500% in 2017. All these signs aren’t new and have
previously been registered in bubble-like events before.

“Stock market bubbles don’t grow out of thin air.

They have a solid basis in reality, but reality as
distorted by a misconception”.—George Soros

Speculative bubbles like Bitcoin are usually followed by: “lots of

excitement” and “high amount of volatility”. The perfect combination
of an imminent economic catastrophe. The market can’t always
produce optimal results and gains for everyone unlimitedly, that’s not
what capitalism is all about.

At some point, the craze will stall out, and as we’ve seen in the past
panic will set in. Only those seeking speculative gains will try to cash
out and reap their pro�ts, the ones who thought they were on their way
to easily become millionaires will, unfortunately, be the ones who will
su�er the terrible consequences of the burst.

“Quick and easy wealth often ends in quick and easy

despair”.—Je�rey D. Sachs

Sorry, but bitcoin has all the hallmarks identi�ed as a bubble. It’s
unstable, irrational, speculative, volatile, complicated and way too
euphoric right now. We are just in front of another frothy bubble that
will spectacularly and inevitably crash someday in the near future, we
just have to wait for it.

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