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Cryptocurrencies crash… But they’ll be back

Bitcoin has scarcity and permanence—tulip bulbs had neither

Suppose, for a moment, that there were a fixed number of tulip bulbs in the world. No more (or only a small, pre-specified number more) will ever be created and none will ever be destroyed. Now imagine that the tulip bulb bubble has arisen and burst, just as it did in those long ago days in Holland. But now imagine that instead of vanishing into gardens, or the garbage, the tulip bulbs just sit there—forever. At any point, anyone who wishes may choose to step in and buy them all up, at whatever arbitrarily low price to which they have fallen. The question is, would the permanence and scarcity in itself eventually cause the price to begin to rise again, and once it began rising, is there any reason to think it wouldn’t spike again, for the very same reasons it did before—each man betting he can sell for better than he bought? And is there any reason to think it wouldn’t then crash again, just as it did before, for the very same reasons it did before—exhaustion of liquidity, followed by panic?

Two years ago, the world didn’t have an answer to that question. The world may have debated it, and the world may debate it now, but there’s no particular reason to do so. We know the answer now. Bitcoin showed it to us.

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.