Crypto´s in a bubble ???

Again and again, I hear that bitcoin is a bubble and crypto´s in general is a bubble just waiting to pop, and go to zero. It is the same story told again and again since 2009. This has usually been presented along with an accusation of crypto´s being a ponzi scheme, since critics only see it as a speculation of some future person stupid enough to buy into it and the previous person running off with a profit on promising future wealth to that particular stupid buyer.

There is no doubt in anyone´s mind though, even the most rabid crypto-enthusiasts, that there is volatility in the price-discovery mechanism, in such a completely free marked as the crypto-verse is. This volatility is frightening to many, who lives in the old paradigm, as they are used to everything being regulated by their masters (read government and central banks) to "save them" from "risk". The volatility is the "struggle" between price and value. Assets that have had years and years to settle this balance in the old paradigm (which is also manipulated and controlled by the central banks), do never show anything like what we are witnessing when, say a new ERC20 token hits the free crypto market. This is how a free market behaves in real time ... amplified by the smallness of it, since relatively small movements of large buyers/sellers can have great effects (less so in the old paradigm). There are local bubbles and contractions on any given day of any crypto. That is philosophically a sound conclusion. But that all comes down to the price discovery mechanism, and changes in the subjective view of the value of some given crypto or crypto measured asset (ERC20 token based services).

The reason I use the terms "old paradigm" and "new paradigm" is absolutely deliberate. This is actually the whole point of investing in crypto´s and the reason why the GENERAL trend of the crypto market IS NOT in a bubble. The reason is that the crypto universe is a completely new economy, based solely on new kinds of currencies. The old paradigm is soaked in the government enforced fiat regulated pricing mechanism, while cryptos are measured in whatever crypto currency is the market favorite of the participants in this market.

It is necessary to see these markets as completely separate and only connected by exchange of currencies and renomination of assets between them. What rising market cap of the crypto sphere tells us is - that people in the old paradigm are voting with their wallets to go to the new economy and thereby raise the price of the currency/token they enter into, and at the same time inflate the prices on assets in the old paradigm (not really visible in the old paradigm yet, what comes from this transition).

The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.
Satoshi Nakamoto

Now down to the meat of the matter. The fallacy that critics always conclude, ref. my drawing above, is to compare an asset or a fiat currency in the old paradigm, with the complete economy in the new paradigm. If fiat flows into a new asset in the old paradigm and creates a bubble in that particular asset, the whole economy stays the same, because it is just a value transfer within the same sphere ... in other words the total balance is the same, because value only moves within the paradigm.

On the other hand, the crypto´s rise in value because value from the OLD pardigm is LEAVING the old paradigm and ENTERING the new paradigm. This is NOT bubble creation, this is a CURRENCY REFORM. It is even something we have never seen since the invention of money some 3000 years ago ... A FREE MARKET CURRENCY REFORM.

At first the only thing that existed in the crypto sphere was Bitcoin ... that was an economy basically without any assets, only a currency. No wonder most people had big trouble figuring out why this would be interesting. But on the hope that enough people would figure out the true groundbreaking attributes of this new currency, assets would start to become nominated in this (and competing currencies) and thus rise in value. This initial adaptation is in the proces of taking place now. The value of cryptos is rising because more and more assets (in the broadest possible understanding) is becoming nominated in crypto of some kind. This makes the usefulness of the crypto better and more people want to join etc. This is NOT bubble mentality ... this is a paradigm shift ... and it has only just begun. A 150 bill market cap is nothing to the 100+ trill (or whatever) in the old paradigm, that potentially will "convert" itself to working in the new (crypto) paradigm.

Only time will tell ... but it is looking good :-)

I’m sure that in 20 years there will either be very large (bitcoin) transaction volume or no volume.
Satoshi Nakamoto