Bitcoin price bubble in 4 charts

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Olson/Getty Images

The value of Bitcoin has risen 604% so far this
year. Ethereum, its closest competitor, has risen
3,562%.

Those gains far outpace the dot-com bubble from the
1990s. 

Given Bitcoin’s volatility, it lacks the
ability
 to disrupt traditional fiat
currency as a store of value and method of
payment. 

Cryptocurrencies have surely been the best-performing asset class
of 2017.

The crown jewel of the crypto world Bitcoin
has run up over 604% year to date. But that pales in comparison
to Ethereum’s
3,562% gain this year.

Naturally, these sorts of monstrous returns in such a short
period of time spark heated debate. In fact, many financial
pundits and crypto advocates have scrambled to argue whether
Bitcoin is a bubble or not.

So as the financial community takes sides, I decided to dig into
Bitcoin’s tremendous run using nothing but hard data to see
whether it’s in
bubble territory or not. 

Let’s dive in.

Bitcoin’s Performance Dwarfs Tech Stocks’ Run in the 90s, but
This Bubble Is Nowhere Near the Dot-Com Mania

The Bitcoin run has drawn comparisons to the dot-com bubble of
the late 1990s. While the sentiment and underlying forces of both
bubbles may be similar, their performance is a different story.

Image_1a_20171113_ME_OP_JWMauldin
Economics

At the beginning of 2015, Bitcoin was trading just above $300. In
early November this year, the Bitcoin price topped $7,600. That
translates to returns north of 2,200% in a matter of 1,041
trading days.

By comparison, the NASDAQ index was up 391% after 1,041 trading
days from the start of 1995. Returns on the NASDAQ index peaked
just shy of 1,100% after 1,326 trading days.

Bitcoin’s run has far outpaced the tech bubble, and its returns
have already dwarfed dot-com mania.

Now, crypto advocates argue that Bitcoin has transformative
fundamentals so the returns are justified.

I don’t deny that blockchain is a transformative technology that
will eventually revolutionize the finance industry. But the
mainstream adoption of the Internet in the 1990s was a paradigm
shift, too.

The widespread adoption of any transformative technology has ups
and downs and takes way more time than people think. These things
don’t happen overnight.

or example, one of the hallmarks of the dot-com bubble was
Pets.com, an e-commerce site for pet supplies. The company
launched in August 1998 and went bankrupt by November 2000,
wiping out $300 million in investment capital in the process.

Ordering pet supplies online wan’t necessarily a bad idea. Amazon
fulfills that very same need to millions of people today. But it
took more than a decade for Amazon to grow and scale the business
into the viable service it is today.

During the dot-com crash, the NASDAQ composite lost 78% of its
value, wiping out trillions of dollars between March 2000 and
October 2002. With a total market cap near $200 billion,
cryptocurrencies are nowhere near the dot-com stocks of the late
1990s.

This means that it won’t take a whole lot of new capital to push
Bitcoin even higher. But until Bitcoin matures, its price
appreciation is only speculation.

No, Bitcoin Does’t Have the Capacity to Disrupt the Fiat Monetary
System

A common argument for Bitcoin is that a decentralized digital
currency has the power to disrupt the fiat monetary system.
However, it does not—as of yet.

There were just over 11 million
Bitcoin transactions in the second quarter of 2017. That may
not be an all-encompassing figure due to the decentralized nature
of Bitcoin, but it provides some important perspective.

Visa, which is the world’s largest credit card company, processed
over 42 billion transactions in the second quarter. It can handle
tens of thousands of transactions per second, whereas Bitcoin’s
Blockchain is limited to less than 10 transactions per second.

From a valuation perspective, Visa is valued at only $6 per
transaction while Bitcoin trades well over $10,000 per
transaction (see the chart below).

Image_2a_20171113_ME_OP_JWMauldin
Economics

There is also the matter of energy consumption. There are
thousands of computers performing complicated math problems in
order to “mine” new Bitcoin, which consumes huge amounts of
energy.

The Digiconomist
has created an index that estimates Bitcoin energy consumption.
According to their estimates, the amount of electricity used for
one single Bitcoin transaction could power 8.12 US households for
1 day.

The number of US households that could be powered by Bitcoin is
estimated to be over 2.3 million. The Digiconomist also
made a back-of-the-envelope estimate of Visa’s
total energy consumption at…

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