Bitcoin: Good, Bad, Bubble

Surely, at least once you have heard this statement: “Bitcoin is a bubble!”

But adherents of the “bubble” sect are often unable to even tell in general terms what they mean. I’ll try to do it for them, and at the same time find out how bad “economic bubbles” are. But first, I'll tell you three stories about bubbles.

Klondike, Gold Rush.

1896. Klondike region, Canada. Three miners, George Carmack, Jim Skookum and Charlie Dawson, according to legend, were able to fill a hard drive case (a gun; there were no hard drives then) with gold within a few hours. However, it took at least another year for the news to reach the big world.

And then crowds of prospectors poured into places that until that moment had been deserted lands. Often, many of them did not even imagine what awaited them. There is no point in retelling Jack London's books. Another thing is important.

Over time, gold mining has become increasingly labor-intensive, open deposits have been depleted, and this business has become available only to large geological companies. The infrastructure that grew up around the mining towns - bars, hotels, transport companies, administrative buildings - became unnecessary and fell into disrepair. As a result, a huge number of towns were abandoned and turned into ghost towns. The last wave of prospectors, who abandoned their homes, often sold everything they could for next to nothing or received nothing for their property. 

It is difficult to call these events an economic bubble, but many of its main features are present.

Dot-com bubble

The name dot-com comes from the English reading of the first-level domain for commercial organizations ".com". 

The events took place from approximately 1995 until the first half of 2000. During this period, Internet company stocks skyrocketed. Economic analysts declared the era of a new economy; companies multiplied like mushrooms. However, on March 10, 2000, the overheated market culminated and collapsed. The NASDAQ index reached 5132.52 points, after which it fell by one and a half times. This was followed by a series of bankruptcies of companies offering income via the Internet. For a time, the term “dot-com” became almost a dirty word, and the market spent several years recovering from the shock.  

Only companies survived that had real income at the time of the collapse, and did not declare business on the Internet an end in itself.. Some of them, such as Aman and eBay, have become industry giants today.

On the one hand, these events hit the information market hard: many hosting companies went bankrupt, demand for server equipment fell, and investors became very wary of technology firms. On the other hand, the market was cleared of outright husks, and those who ran a real business remained and eventually became the basis of the modern Internet.

The boom of mobile games

After the release of the first iPhone, many mobile phone manufacturers were forced to sharply raise the bar. You can safely divide the history of mobile communications into “Before the iPhone” and “After the creation of the iPhone.” 

Until 2007, the smartphone market was replete with a variety of handsets, usually push-button ones. Each of them had its own closed operating system, the interface was a conversation between a black man and a Yakut, and ergonomics were judged mainly by the color of the case.

However, the arrival of the iPhone not only brought all smartphones to an essentially uniform format (a large touch screen fully controlled by touches and gestures), but also stimulated the development industry for mobile platforms. Apple has given developers the opportunity to sell their applications through the company's AppStore. Google did not lag behind it with its PlayMarket.

There is a saying in IT that for everything that can be written a program, a game will definitely be written. Smartphones with high-quality screens by mobile standards are no exception. 

On December 10, 2009, the Rovio team released Angry Birds. A simple game with simple gameplay about a conflict between cartoon pigs and cartoon birds. In 2010, Rovio said that the game brought them about 56 million dollars, with an investment of 100,000.

A wave of developers has rushed into the market wanting to make a quick profit. On the one hand, this approach worked for some time, and with minimal investments, many games brought in, if not millions, then hundreds of thousands of dollars. Investors are flocking to invest in young, promising teams. On the other hand, as a result, app stores are filled with useless junk. The increase in the number of companies and the decline in the overall quality of development have led to the fact that where previously one company earned $100, now five companies share $50 among themselves.. And users have become much more discerning and no longer demand a variety of games, but interesting gameplay, beautiful graphics and the absence of bugs.

All of the above examples have several similar features in common. You can add to them a wave of startups with unclear monetization models, BigData technology, and neural networks. Every few years the cycle repeats - a new technology, a new product, or a new opportunity opens up on the market.

What does Bitcoin have to do with it?

Despite the fact that the general course of events during the formation of any markets is approximately the same. A new market appears within a relatively narrow framework, attracts those who want to get rich quickly, and accumulates funds. After which a sudden collapse occurs, and only the strongest, proven players remain. Those who offer something truly new and useful.

In fact, such collapses are more likely a sign of market recovery, its maturation and transition from a phase of rapid, explosive growth to systemic development. Don't expect the cryptocurrency market to only grow. But the rush demand itself, followed by a sharp decline, may indicate that the market is moving from the stage of the wild west to clear and transparent rules of the game.

Of course, many “shitcoins” will be forgotten in a year, the exchange rate will continue to fluctuate, but in general, nothing threatens the future of bitcoin.