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Comment by BenderV | Hacker News Reader

Whenever I look at the evolution of Bitcoin's price, I feel oblige to think about the internet bubble...

But I was too young to care about that then.

Could someone explain to me the similarities and differences between those two events ? How Bitcoin could avoid the "too-early" bubble ?

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Bitcoin is designed to be deflationary in nature. Many people here will see BTC's dramatic rise in price as a feature, not a bug. I personally am more concerned about the difficulties of BTC -> USD conversion... with exchanges going down and others getting hacked.

Speculators obviously love BTC's volatility. But surely, this is not a sign of a healthy "currency".

Bitcoin is indeed designed to be inherently deflationary, but the volatility is far too great to be explained by that; it's likely in a speculative bubble.

Or it is just really young and eventually will be less volatile.

I have difficulty thinking of _anything_ that went from being as volatile as that to stability.

Here is what drove the Internet bubble: during the whole nineties, the stock market went upwards. People thought we had entered a New Economy without recessions. There were plenty of good reasons to believe this. For example, due to the end of the cold war, we could allocate resources to much more productive areas and gain a lot through globalization and increased international trade. This effect was also known as the peace dividend. Furthermore, the Internet promised to bring enormous productivity increases. The sentiment was that everything will be done online sooner or later and that whoever is first to occupy a particular niche in the Internet would dominate that market globally and forever. For example, the first to create an online shop for pets would have such an advantage that if executed well, competitors would never be able to catch up anymore. By buying a share of pets.com, you did not want to buy a share of a company without profits, you wanted to buy a share of the future before it was too late. People thought they would be buying the equivalent of a few square feet of future Manhatten. Domain names changed hands for crazy prices. It was very hard to resist the general sentiment as it was repeated over and over, for years. One of the few that resisted was Warren Buffet - and the media pitied him for not understanding the New Economy due to his advanced age.

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