Bitcoin believers maintain view it could find institutional buy-in despite FTX chaos
With FTX’s catastrophic failure, its $460 million bankruptcy filing, and the loss of more than $130 million of customer funds, bitcoin enthusiasts are still not convinced that their digital currency is a bubble waiting to burst. Bitcoin believers believe that it has the potential to find institutional buy-in despite its current volatility and uncertainty. Some bitcoin investors even see FTX’s fall as an opportunity for new capital to enter the market through fleeing customers or government agencies attempting to shore up confidence in cryptocurrency markets.
Beside this blog post there is a video “What is a Bitcoin?”.
1. Bitcoin was first released in 2009 by a person or group using the name Satoshi Nakamoto. It came to prominence earlier this year when its value suddenly spiked.
2. “Money Illusion” is a popular economic thought experiment meaning that money is worth more if it is scarce because people are not keeping up with inflation in the real economy. For example, if a stock market crashes and people do not adjust their prices; then their currency will lose value as it is not reflecting reality but rather previous nominal values due to stability in the stock market before the crash.
3. It is possible to believe in Bitcoin without holding any cryptocurrency, such as Bitcoin itself, but some people are still more invested in the idea (of crypto) than one’s financial assets.
4. There are many serious concerns about this experiment, such as what happens when the dollar has lost its stable value and that was not even a year after the crash of 2008; and how will payment processors interact with this experimental new currency? Is there not a risk that they could cut off service to bitcoin companies? There are also rumors of Bitcoin hard forks which might destroy the currency entirely.
5. The “second half” or “second life” of Mt Gox by Mark Brown: http://www.bbc.com/news/business-27542695
6. Exchanges are not the same as Bitcoin wallets, which store the private keys used to send and receive cryptocurrency.
7. “The most expensive fraud in blockchain history” is a headline that originally appeared on Business Insider and has since been disputed by some bitcoin critics such as The Economist who holds that it is too simplistic to blame a single company for the collapse of an entire market: https://www.economist.com/blogs/freeexchange/2014/08/bitcoin
8. This is a difficult question to answer with complete certainty, but the general consensus is that cryptocurrencies are worth at least. They are currently more valuable (in terms of fiat currency) than virtually every commodity traded on Earth except for rare earth metals and perhaps diamonds.
9. It is also important to remember that a massive portion of the 21 million total bitcoins have already been “mined” which makes it extremely difficult to “find.” Mining bitcoin is no longer profitable for most people and has largely been replaced by large facilities with industrial hardware in Iceland, Georgia, and Washington State.
10. In this instance, “pump and dump” refers to a tactic where an investor will aggressively promote a startup, or other asset, creating a lot of noise via social media, then immediately sell their shares. This is done in order to make the price of the asset drop significantly and more quickly.
11. It is important to remember that there are also other currencies that are used as alternative payment methods for goods such as e-gold, Liberty Reserve (which was shut down by the FBI), various web-based alternatives to PayPal and Square, Amazon’s .com coins (which have virtually no value outside of Amazon), etc.
12. This is not to say that there are not legitimate uses for these currencies since they are still in their relative infancy and have yet to achieve a large scale, institutional adoption.
13. Bitcoin trading volume is now over $1 billion USD per day, a figure that rose from almost nothing at the beginning of the year (see chart below).
14. The only way for this to change would be if there were more people interested in bitcoin beyond speculators, speculators who don’t actually want to use or store the currency themselves but rather just benefit from its rise or fall in price which still leaves out many other potential users of Bitcoin who are wary of its volatility.
15. “In the long term, Bitcoin has a significant chance of becoming widely adopted as a global currency” is how one Forbes contributor puts it.
16. Also see: http://www.coindesk.com/walle-thinks-bitcoin-will-reach-25000
17. The author relies on data from CoinDesk and places emphasis on transactions in order to illustrate Bitcoin’s real usage with far less volatility than many cryptocurrencies that are valued solely off of their market capitalization (a measure of price multiplied by number of shares).
18. “The Bitcoin Bubble” is a popular blog post that theorizes that the cryptocurrency can go up to $1 million by 2016.
19. Though I am aware that the total value of all bitcoins is far greater than its current market capitalization, my main concern with this theory is its technical correctness (as an “intrinsic value” of bitcoin would obviously be far less) and therefore I won’t include it in this post.
20. This is not to say that there are not external factors in play; for example, as more large institutions enter the market, people may begin to see bitcoin as a security and will have to use tokens on their exchanges to comply with securities regulations which would again increase volatility.
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