Bitcoin has been pronounced dead hundreds of times

It has been a brutal few weeks for bitcoin holders as bitcoin has got slaughtered harshly following the announcement of China that they are banning all the ICOs (Initial Coin Offer) and  also closing all the China-based cryptocurrency exchanges. The pain can be enormous for those who chased it and got in at its recent peak price around $5000. Honestly, even as a bitcoin big believer, I also think bitcoin is in a bubble, but definitely not in the sense of what those doomsayers have claimed. I think bitcoin is in a huge short-term bubble that needs to burst first before going up further. In the long run, I have no doubt it will be a great value player, a transformational wealth creator! Actually I like what is happening now for bitcoin and the like as it is the only way to allow me to get more of them cheaply when the dust settles. Let me share with you a few thoughts:

• Since its birth less than 10 years ago, it has increased its value from a few cents to now $5000 at the peak. Someone has counted that there have been at least about 200 times reflected in the major headlines news that bitcoin was called dead or something similar by various doomsayers, including many very influential bodies. The most famous one occurred about 2 years ago also following the announcement from China that they would ban any financial institutes to transfer funds for bitcoin exchanges. Bitcoin got slaughtered as well and crashed from over $1000 then to as low as about $200 at its bottom. Then it revived and came back astonishingly strong to reach the bubbly top at $5000.
• The Chinese government’s extreme action to totally ban bitcoin and the like may sound like the end of world for bitcoin but in reality there is little concern for it. There are several aspects on this:
  • Due to the nature of blockchains that is the cornerstone for bitcoin, there is no way to totally ban bitcoin, unless the Internet is totally blocked. For example, one can still mine bitcoin on the Internet and easily exchange it for money via foreign exchanges abroad either directly via Internet channel or even physically by mailing or carrying a physical bitcoin wallet to do so if the Internet access is blocked. It certainly make people’s life more challenging but believe me, people will find a way to survive as long as bitcoin is still increasing in value.
  • The Chinese government is notoriously extremely changeable in terms of regulations. I don’t think they will keep the current stance forever. More likely they will probably just take the time to start implement regulations that can be controlled by the government. After all, this is a transformational new technology that China does not want to be left behind. We have seen numerous times what the Chinese government has done and changed in the past in various areas that are new to them. This time is no difference.
  • Even in the worst case scenario that bitcoin is indeed totally blocked forever in China, it is still not the end of world. Many other countries and jurisdictions are more open to new technology and innovation and take a more supportive attitude for bitcoin.  For example, Sweden, Switzerland, and Canada are taking a more progressive approach. Canada has already treated ICO as securities that can be legally issued under regulations. Sweden has launched an ETF for bitcoin.  And Japan, which recently legalized bitcoin transactions, will soon launch an ICO platform, called COMSA ICO, that facilitates new coin offerings.  Australia is also considering to legalize bitcoin. The more interesting case is Russia which totally banned bitcoin in 2014. But now their financial minister has openly acknowledged that there is no point to block bitcoin and they will legalize bitcoin by the year end. The list will only grow as the time passes by.
  • So what happens in the US? It is too early to tell for sure but all the evidence suggests it will be a more adoptive environment. If you don’t know yet, the Commodity Futures Trading Commission – the CFTC, – that regulates futures and options trading just approved a trading platform called LedgerX for bitcoin options. This will allow big money investors to hedge their cryptocurrency risk the same way regular currency investors do. There is no reason to believe that the other government security regulator, SEC, will totally go to the other direction. It may take more time but I think eventually SEC will follow the CFTC lead, especially now it has a new head who is known to be more open to bitcoin.    
• You certainly have heard the influential financial heavyweight,  Jamie Dimon (CEO of JP Morgan), has called bitcoin a fraud. But interestingly, people immediately found that JP Morgan is actually buying bitcoin even after Dimon has publically denounced it. So the question is why JP is buying bitcoin in Europe while it is a fraud per their CEO? If you think about it further, what can you expect a head of a major bank will say about bitcoin when it is going to be a major threat to their core business? This is just like what you will hear from the head of Post Office about their opinion on email. We will certainly hear more such BS moving forward but I think it will become increasingly laughable jokes when bitcoin becomes more adopted by people around the world. What do you think about this quote? “For society, the Internet is wonderful, but for capitalists, it will be a net negative. It will increase efficiency, but lots of things increase efficiency without increasing profits. It is way more likely to make American businesses less profitable than more profitable. This is perfectly obvious, but very little understood.” Sounds pretty stupid, right? But can you believe this was said by one of the smartest investors, Charlie Munger, the buddy of Warren Buffet and the co-founder of  Berkshire Hathaway? I have no doubt we will feel the same in 5-10 years for what Dimon said now when we look back at that time. By the way, don't simply believe something just because he or she is big influential guy. Actually Dimon has already claimed a couple of years ago that bitcoin could not survive beyond $400. It is already 10 times higher now!!
• One evidence that bitcoin will go into the mainstream is the fact that retail business has already started to accept bitcoin as a legitimate payment. Two of the country’s biggest names in e-commerce, Overstock.com and TigerDirect.com, have started accepting Bitcoin as payment. Directly or indirectly bitcoin holders can spend their cryptocurrency in brick and mortar stores including Home Depot, CVS, Kmart and Sears as well as online at web retail granddaddy Amazon.com. The trend will only continue with more retail business to join the game. It is simply not stoppable!
• Last but not least, I recently heard another interest argument why bitcoin won’t die: the widespread acceptance by third world countries where they are facing increasingly severe inflation problems with their official currencies. You probably all know that Venezuela is collapsing and their official currency has become virtually worthless. Stories have emerged that bitcoin has become a life-saving vehicle for preserving their buying power for many people. I think this is indeed an interest but very logical argument for the utility of bitcoin and I also believe it will only become more so when the world has become increasingly more of turmoil in many countries. Since bitcoin is strictly limited in its supply to only 21 million coins possibly being mined and the population of the third world is so huge, this may create a vast shortage of the bitcoin supply down the road when so many people want to have it. I think it is just a matter of time!

You may ask why I spend so much time to write on bitcoin. Well, for one it is my hobby to share my thoughts on something I think interesting. It is not a burden but fun for me to do so, especially I don’t need to put together all the details at once. I often joke by saying that writing this investment blog is an anti-depressant for me. On the other hand, I also want to leave my thoughts as a historical record here. I’m pretty sure there is some historical meaning with all the discussions about bitcoin now and I want to leave a trace here.  About 20 years ago when the Internet was still in its primitive stage in use, I was called by my boss (a Cornell professor) as a genius because I could use the Internet to look for some interesting information for him, in addition to just using it for sending emails. Now looking back, it was almost unthinkable how little people felt about the Internet’s utility back then. I wish you won’t be among those only calling me “genius” retrospectively in 5-10 years from now that I’m so enthusiastically talking about the future for bitcoin now. For sure, only the history can tell if I’m right but I firmly believe I am!