Traditional Financial Analysts Clash with Crypto Advocates Over Future of Bitcoin

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BITCOINETHEREUMTRADINGPRICE ANALYSIS
Traditional Financial Analysts Clash with Crypto Advocates Over Future of Bitcoin
By Trevor Smith - September 18, 2017
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The past two weeks have been extremely volatile for cryptocurrency valuations. A series of negative moves by state regulators, notably in China, have combined with critical statements by financial experts to throw the crypto world into a frenzy. Bitcoin has seen price fluctuations by as much as thirty percent in one day, as have most altcoins. The most significant concern during this period of uncertainty has been whether or not Bitcoin is experiencing a price bubble, and if so, when it will pop. A number of respected figures in the financial world firmly believe such a bubble exists, and that price collapse is inevitable. Many crypto advocates, on the other hand, disagree. A closer look at the history and functionality of blockchain technology indicates that the truth is likely a bit more complicated.

A few days ago Jamie Dimon, CEO of JPMorgan Chase, declared Bitcoin a “fraud”, akin to the notorious Tulip Bulb Mania of the 1630s. Dimon went so far as to threaten to fire any employee found to be trading Bitcoin. His bank also issued a statement on cryptocurrency in general, written by analyst Marko Kolanovic, which compared cryptos to pyramid schemes. Kolanovic stated that, based on historical trends, the future of cryptocurrencies “will not be bright”.

Others have agreed with Dimon. CNBC financial analyst Ron Insana has warned Bitcoin investors to “get out before the bust,” claiming that Bitcoin is certain to see a price collapse. Insana asserts that Bitcoin fails to meet the criteria of a currency, and is experiencing a speculative boom similar to many other transformative phenomena of years past. In his article Insana notes that even Sir Isaac Newton lost a fortune investing in an over-hyped South American trading venture, later known as the South Sea Bubble. Insana’s lesson: if one of the most intelligent humans ever to live can fall for such a scheme, so can you.

Needless to say, many crypto advocates disagree with these negative assessments. Although they concede that price fluctuations are likely, and Bitcoin value may fall dramatically (as has happened in the past), the network has become too vast, and participation too widespread, for Bitcoin to disappear. Advocates also point to the multitude of mainstream financial institutions that are exploring Bitcoin and building crypto-based investment products.

A critical examination of the current state of the crypto space reveals that there is truth to both of these positions. Dimon and his supporters are correct in noting that Bitcoin has all the classic signs of a speculative bubble. It has experienced dramatic price drops more than once, and even Bitcoin’s most fanatical supporters must recognize that at some point the rapid growth in value must come to an end. When this happens the price will almost certainly decline, perhaps significantly.

The critics fall short, however, in their inability to distinguish Bitcoin from other cryptocurrencies. More importantly, they fail to appreciate or understand the transformative potential of blockchains. It is here where crypto advocates make the winning argument. Simply put, not all cryptos are the same. Many are technically superior to Bitcoin as simple, digital currencies. Others, such as Ethereum, Ripple, and Neo, are not actual cryptocurrencies. They are platforms around which blockchain systems can be built