We at Arthashastra have been getting a lot of enquiries for Bitcoin as an investment option, especially since few days when it’s price has zoomed from $ 8000-14000
By no means we are predicting anything , but this is a small effort to put forth our views with our limited understanding of Bitcoins
3 important ingredients for the receipe of any bubble are :
1) A Compelling Story about it’s Future
2) Valuations just do not matter
3) The Asset In-Play should be a new trend and in scare supply
Remember the Trends in any asset class are always the same, only the name changes.. They always start with Solid fundamentals, which the blockchain Technology has, but then speculation takes things over and rapid rally in prices gets more investors (this is happening Now) and at the end majority of investors end up holding a assets at ridiculous price.
Interesting case study – The Stock Market is always futuristic and right, though they sometimes over do it. The Price of Zee Entertainment went up 200x in 1998 and 1999 because markets believed that in the next 10 years every home would have a color TV and they would watch Zee TV, well the markets were right, but like always they overdid it and it took 16 years for Zee TV for reach its 2000 highs again. The Stock Price Corrected 95% as falling stock prices are followed by more selling.
When does an bubble bust …
When an asset class sees maddening euphoria, all it needs a prick of bad news from any quarter and suddenly the liquidity starts drying up….The falling prices lead to panic selling and the so the burst…
This dry up of Liquidity & Bad news can happen due a Bitcoin Exchange collapsing, a Fraud, possibility of a hack, governments actions etc…
Conclusion – The Markets are never wrong about the Future, they just extrapolate and overdo it. Digital Currency is definitely the thing of the future and just like RBI is working to come up with Lakshmi as India’s Digital Currency, every other country will come up with its own currency. We are very confident that the world would move from paper currency toward digital currency and this is definitely the Start. As far as Bitcoin goes, its a great technology, but right now at current prices its just speculation, history has been created and bitcoins will be remembered forever.
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