Crypto Cycles: A Shift In Investment Logic In The Digital Currency Market

The economist Albert Alchain once said “economics does not care whether people are rational, but whether people can survive.” 

This statement certainly hits home. After ten years of rapid growth in the digital currency market, the impression most people have is that it’s all just hype, a bubble, or too risky. While everyone has their own view, the goal is not to define what the current market should be, but what it actually is.

Review of Digital Currency Market Investment in the Past Decade

Bitcoin Investment Logic Since 2008

Since 2008, there have been numerous articles discussing the logic behind Bitcoin investment. There are three main points to consider:

  1. Monetary Perspective: From the collapse of the Bretton Woods System and the criticisms of Keynesianism, to the praising of Bitcoin’s ingenious design of its deflation mechanism, and Hayek’s view of the “denationalization of money” as a theoretical pillar of Bitcoin as a mainstream currency.
  2. Mechanism Design Perspective: Bitcoin is created fairly from the process of “mining.” Transactions do not require third-party verification, and records are permanently stored in a public ledger, which cannot be changed or altered. 
  3. Network Effects Perspective: The simple and straightforward incentive system of Bitcoin enables large-scale expansion of its network effects. The global, well-known venture capital company A16Z, is a supporter of the network effect. 

Ethereum’s Influence on the 2017 Bull Market 

In 2017, the principles of Ethereum and smart contracts triggered a bull market. The analysis of the reasons for this movement, however, is obviously not sufficient in analyzing the value of Bitcoin investment. This is largely due to the fact that digital currency believers tend to recognize Bitcoin as an “asset,” while other digital currencies can only be referred to as “investments.”

We can simply explain that the “assets” here refer to “investment goods that you are willing to…

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