Since a bubble isn't really a bubble before it pops, the above declaration may be a little premature. However, I have not come across any way to value bitcoin that does not end up with a price close to zero:
- If bitcoin is valued as an access to a blockchain network, it should be prices relative to the expected future turnover for that network. Bitcoin is already obsolete as a technology and should therefore be priced close to zero.
- If bitcoin is cash, it should be priced relative to its future turnover as such. Since bitcoin is obsolete, and will never function well as cash, its price should be close to zero.
- If bitcoin is "digital gold" it should be priced as a commodity. Since bitcoin has no utility beyond exchange, it has no value as a commodity.
So what is it about bitcoin that drives the mania?
The clue can be found in understanding the tulip mania.
What has been largely forgotten is that tulip mania was not really about tulip bulbs, but about a completely new way of doing transactions. The tulip bulbs were merely the tokens that floated about in this new and wonderful marketplace where ledgers were kept and futures were honored.
17th century Holland saw the invention of modern financial exchanges. People could buy and sell future contracts, and the first commodity to be traded in this way were tulip bulbs.
People who bought future contracts for tulip bulbs were doing something that had never been done before. They were taking part in a revolution, and they were getting rich, at least on paper.
The way tulips were bought and sold was in such a contrast to the market place at the town square that the fact that what they were trading were mere flower bulbs got lost in the excitement.
People in Holland were no more stupid than people today. They were not getting super exited by tulip bulbs. They were exited about the endless possibilities that futures trading seemed to promise.
Lost in all the excitement about the new technology was the fact that the tulip bulbs were in fact separate from the market mechanism. Owning a tulip bulb did not give the owner a claim on the technology. The tulip bulb was merely a token required in order to take part.
This is pretty much exactly what's going on with bitcoin. People are confusing bitcoin with blockchain. To take part in the decentralization revolution, people have to own a token. They buy bitcoin and other crypto-currencies in order to take part. But they are mistaken in thinking that their participation will give them a claim on the technology. Owning a bitcoin gives us no more a claim on decentralized ledgers than owning a tulip bulb gave anyone a claim on futures trading.
In the end, a tulip bulb is nothing more or less than a tulip bulb, and a bitcoin is nothing more than a fancy number. Everything else is technology that can be replicated and used for all sorts of other purposes at no gain to either tulip bulb owners or bitcoin owners.
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| Tulip |
By Bernd Haynold - Own work, CC BY 2.5, Link
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