What’s Really Happening With Crypto

I’m sure you’ve seen them around in the financial commentary.

The references to ‘tulip crazes’.

The ‘bitcoin is a bubble’ charts.

People comparing it to other financial assets and saying, ‘Look how steep that is, it’s obviously a bubble.’

There’s only one problem. You see, they’re comparing apples with oranges. Blinded by their internal biases, they’re not seeing what’s really happening.

You can’t compare bitcoin to stocks. Or gold. Or any other financial asset. Because it is a technology as well as a financial asset.

The only charts comparable to bitcoin are actually adoption charts.

Like this one:

Time to reach 100 million users 11-12-2017

Source: coindesk.com
[Click to enlarge]

This chart shows how long it took for Google, My Space, Facebook, Twitter and LinkedIn to go from zero users to 100 million users.

Look at how steep Google’s rise was.

From zero to 100 million users in just seven months. But that was just the clue that something big was happening. It wasn’t a ‘bubble’ in Google usage.

Today around 2.2 billion people use Google on a regular basis.


Because it helps find information faster and better than any other system in human history.

Now, here’s the thing…

What goes up doesn’t need to come down

It’s estimated that only around 0.5% of the global population have any crypto at all.

Again it helps to look at history to see how technology can grow faster than anyone imagines…

1994 email vs 2017 email 11-12-2017

Source: Duoscene.com
[Click to enlarge]

If crypto and blockchain technology turns out to be like Google or email then this is not a bubble. It’s simply the early signs of mainstream adoption.

That means around 99% of the population are still off the bandwagon.

If that’s the case, this is not a crypto bubble graph we are witnessing with the price. It’s an adoption chart, based on a tipping point being reached.

Of course, nothing is certain. And crypto is more than bitcoin. There are over one thousand other cryptos. And in the future potentially thousands more.

Bitcoin could turn out to be a Myspace, which lead the charge on social media but fell to Facebook. Or a Yahoo, falling to a Google.

The best technology usually wins out in the end.

But bitcoin holds a special place right now. It’s not just a technology. It’s also a hedge.

Let me explain…

Who can you trust?

You might be living through a unique moment in history.

The death of fiat money.

Fiat money — that is, the dollars you and I use today, and currencies like them — has been around for centuries. It was even in use in China around 1,000 AD.

Here’s how Wikipedia defines it:

Fiat money is a currency without intrinsic value established as money by government regulation. It has an assigned value only because the government uses its power to enforce the value of a fiat currency. The term derives from the Latin fiat (“let it be done”)[1] used in the sense of an order or decree.

In other words, it’s valuable simply because you are told it is.

You have to trust the messenger as much as the message.

I don’t know about you, but in a world where Trump can be President and the UK can vote to shoot themselves in the foot with Brexit, I’m not sure I trust the system so much.

Without trust in governments, fiat fails. It’s as simple as that.

And if fiat fails, where to then?

To gold? To guns? To tinned beans?

Well, hopefully not.

But to technology and decentralisation? Maybe that is the wise move. You don’t need to trust your politicians, or even your fellow voters, to get it right. You don’t have to trust your ruling elites. In fact, you don’t have to trust anyone.

That is the promise of cryptocurrencies.

And it’s why an increasingly large section of the general public are looking at them seriously.

If I’m right, you’re not witnessing an almighty financial bubble right now. You’re simply witnessing an adoption curve. And with it, the potential death spiral of fiat money.

Ryan Dinse,
Editor, Money Morning


Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia