Tech entrepreneur Mark Cuban has recently stated that Bitcoin is facing a bubble. However, Daniel M. Harrison, the CEO of DMH&CO and managing partner of Monkey Capital, reveals that such a thing is impossible due to the market-influencing capabilities of Bitcoin and Ethereum.
Market bipolarity
The main factor that makes a digital bubble impossible is market bipolarity. For many people, market bipolarity is confusing but it can be distilled in a few important and understandable viewpoints. Apparently, market bipolarity is directly affected by George Soros’ “theory of reflexivity.”
According to George Soros, market conditions are not influenced by equilibrium. Rather, they are “reflexive” due to the synchronization of two functions: cognitive and manipulative function. The cognitive function is a neutral thinking base - this is where economic participants assess facts for what they are.
The manipulative function, on the other hand, turns one fact (or a couple of facts) in order to gain an advantage. Once the cognitive mind is affected by the manipulative mind, the neutrality will be “painted” in a different light it becomes a manipulated fact.
Therefore, markets reflect the view and perspective of participants, not the full scope of economics.
The situation can be represented in two ways:
- Manipulative Cognitive = Reflexive
- Manipulative + Cognitive = Equilibrium
The aforementioned equations show that a manipulative thinking pattern is the usual baseline and not a cognitive function. This shows the reflexive nature of all markets one of the clear indicators that Bitcoin and Ethereum are far from experiencing a digital bubble.
Artificial vs. Natural
More importantly, Ethereum and Bitcoin markets are influenced by two thinkers: artificial and natural. Artificial pertains to the Blockchain AI and natural is all about human intervention. Many experts think that Blockchain is adopting an "economic mindset."
If markets with manipulative and cognitive participants are suddenly annexed, it will always result in reflexivity or positive feedback loops. In this case, digital markets are bound by reflexivity or states of reflexivity. This is a self-perpetuating situation that can go on for many years.
It’s also important to know that artificial thinkers are the “igniters” of self-perpetuating reflexivity. With AI (Blockchain), digital markets will continue to thrive, leading to fluctuating values of Bitcoin and Ethereum. Market bipolarity will always be constant.
Through market bipolarity, any episode of a digital bubble is canceled out. The whole Blockchain system will never return to its “roots” but it will continue evolving. Price valuations, on the other hand, may remain grounded and directed by economic factors.
Innovation or its application in various sectors is also another important factor that shapes Blockchain technology’s tenacity and ability to survive a “bubble.”