Every now and then, I post a Quora question and answer. I call it the Quora corner. Here's one for ya -- your thoughts? Reply below!

From June 2018 (but still relevant):

What is the next cryptocurrency bubble?

The problem with this question is, in order to identify a bubble, you have to know what the “normal” value is. I’m not convinced anybody knows what the normal value of cryptocurrency is.

Usage? Then yes, definitely a bubble. Most cryptocurrencies are not used for any of the purposes they were created for, and some tokens don’t yet have networks on which people can use them (other than to swap for other currencies).

Utility? Then no, definitely NOT a bubble. Public blockchains can reduce transaction costs and improve security for everybody. And, for billions of people in developing countries, they provide a safe, bribe-free way to transact and a cheap way to store information. (As you know, to use a public blockchain you need a cryptocurrency…it’s just the way the technology works.)

How do you value that asset? What is a “normal” value? Is artificial intelligence in a bubble? Lots of people putting lots of money into AI that doesn’t work very well, if at all. Is military spending in a bubble? US alone spends $700 billion on manpower and equipment that’s not usually fighting wars. Sometimes, things have value beyond their price. Sometimes, price isn’t a good measure of value. Sometimes, you can’t assess whether something’s a bubble based on how the price changes.

Here are four charts of real assets. Each chart ends with June 2018. Which assets are bubbles?

Chart 1

Chart 2

Chart 3

Chart 4

It’s obvious.

Chart 3 is the bubble! That’s the price of bitcoin since September 2017.

Or is it? Maybe it’s charts 2 and 4? They have the classic parabolic curve…

Let’s see…

Chart 1 is the price of US treasury bonds, which are probably in a bubble. In other words, it’s the value of US treasury bonds over time. (Not sure if this chart measures 30 year or 10 year bond…)

Chart 2 is the price of Amazon stock after adjusting for splits. In other words, it’s the value of $100 invested when Amazon issued its first stock.

Chart 3 is the price of bitcoin, as noted above.

Chart 4 is the price of my daughter’s savings account, which gets a fixed, guaranteed annual interest. In other words, it’s the value of her money, not adjusted for inflation.

And no economist or market expert could use any of those charts to assess whether any of those assets are actually in a bubble. In fact, two of the charts are actually intellectual nonsense. But they “look” like bubbles, don’t they?

My point is, in a vacuum, anything can be a bubble and anything can look like a bubble. Before you can say whether an asset is in a bubble, you need to have some measure of value or price or worth. Cryptocurrency hasn’t been around long enough to give you any of that information.

Why do you think everybody says don’t put in any more money than you’re willing to lose? Why do you think so many people consider it gambling? Because there’s no way to assess risk or reward. You have to trust that the projects you invest in will have value in the future. You have to trust in the algorithms behind the cryptocurrencies. You have to trust that blockchain technology will deliver on its promises. If you’re right, the rewards a virtually limitless (that’s not an exaggeration). If you’re wrong, you lose everything.

You have to look at cryptocurrencies like a speculator. Imagine you started a business. The moment you opened your doors, somebody saw your potential and asked to buy a small stake in your business. They didn’t ask for anything in return — they’re doing it because they hope that one day, your business will grow and their stake will be worth a lot more than it is now. Are you a bubble? Or are you untapped potential? Nobody can say for sure...yet.

Maybe instead of looking at cryptocurrencies as investments, we could look at cryptocurrencies as a thing to exchange in return for something valuable? Season tickets. Frequent flyer miles. A retirement account. Something you get now, with anticipation that you’ll enjoy it later, which you can sell or use a little here or there.

We use our money to buy things we want and enjoy our lives. Maybe we can do the same with cryptocurrency and not worry about whether it’s in a bubble or not?