Why Bitcoin will crash in 2014

Cowen: “… the more “optimistic” you are about Bitcoin, presumably you should also be more optimistic about its future competitors too.”My opinion on Bitcoin is not original. When I was asked about it recently it was concurrent with the world’s first Bitcoin ATM opening in Vancouver.

In November, Vanessa Collette from Silver Seek asked me about Bitcoin and I explained that I was of two minds on the cryptocurrency. I said I would “…recommend using it for transactions because it’s clearly an advanced offering. As a way to make payments it is the evolution of technology and is an important phenomenon.”

But then she asked my opinion about Bitcoin as an investment. I was clearly the bear in this discussion as the article opened with a quote from Jeff Berwick of TheDollarVigilante.com that said Bitcoin could go to “millions of dollars”.

I had a different take. “Run for the hills” was my response. I explained my feeling that Bitcoin would “become co-opted by newer versions of digital currency.”

I came across this article the other day from one of my favorite economics writers, Tyler Cowen, that explains with more detail how this might happen. Cowen’s take is the same as mine, but he expands upon the details of the scenario greatly in a piece called “How and why Bitcoin will plummet in price”.

“Note that the more “optimistic” you are about Bitcoin, presumably you should also be more optimistic about its future competitors too. Which means the theorem will kick in and you should be a bear on Bitcoin price,” he says. “Arguably it’s the bears on the general workability of cryptocurrencies who should be bullish on Bitcoin price because a) we know Bitcoin already exists, and b) we would have to consider that existence an unexpected and unreplicable outlier of some sort. Yet the usual demon of mood affiliation denies us such a consistency of reasoning, and the cryptocurrency bulls are often also bulls on Bitcoin price, as too many of us prefer a consistency of mood!”

Make no mistake, says Cowen, Bitcoin competitors are coming, and they will be coming fast.

“The current value of outstanding Bitcoin is about $20 billion or so, and it doesn’t seem it cost nearly that much to launch the idea. And now that we know cryptocurrencies can in some way “work,” it seems marketing a competitor might be easier yet.”

My take on this is that Bitcoin will fall hard and it will happen this year. How far will it fall? That I’m not sure of, but Cowen has an idea:

“Once the market becomes contestable, it seems the price of the dominant cryptocurrency is set at about $50, or the marketing costs faced by its potential competitors.”

What is your take? Is Bitcoin worth the more than $700 is currently trades for?

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About The Author / Nick Waddell

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

Comment

One thought on “Why Bitcoin will crash in 2014”

FreeJack says:

January 2, 2014 at 2:57 pm

Price will be dictated by how widespread its adoption spreads and how many merchants accept it as payment. As confidence grows, its reach will grow and the price will necessarily climb. If you believe in the technology, you’re a bull on its price. Time will tell if a competitor proves more effective in practice. My money, personally, is on Litecoin. It will have an extremely strong and widespread network of computing power and has the same features as Bitcoin, but with the faster confirmations and increased coin supply, it may be better suited to commerce in the long run. I think the foundation of Bitcoin is strong, but Litecoin is like Bitcoin 2.0 IMO.