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The Kübler-Ross Theory Applied to Bitcoin: From Denial to Acceptance

By Hans Kullberg

Co-Founder & CEO, CrowdThnk


While the world is awash in Bitcoin-mania with prices surging to dizzying heights, it’s important to take an objective perspective on what this new blockchain technology means and how Bitcoin is leading the cryptocurrency craze.  More importantly, it’s worthwhile to take stock of how the investing world has arrived at this point, how the recent opening of Futures markets will attract more investors and participants who have heretofore been sidelined, and why there may still be more room to run.  In particular, we’ll explore the famous psychology theory first proposed by Dr. Elisabeth Kübler-Ross, the Kübler-Ross Grief Cycle, how it’s applied to Bitcoin and why it potentially sets the stage for a further rally as institutional and retail investors now have easy access to Bitcoin under a regulated and bona fide market exchange.


Is Bitcoin a Bubble?

Bitcoin certainly fits the script of a bubble.  However, while bubbles typically form around revolutionary ideas, products or services, the key is in knowing and discerning whether the bubble is built on something like tulips, which did not have a lasting impact on society, or the internet, which fundamentally transformed the way the world works.  Classic ingredients of a market bubble include:


  1. Difficulty or inability to short-sell the asset
  2. Small market with Fixed Supply
  3. Majority of Investment hoarded by a small group or select few investors
  4. Cognitive Biases that lead to group think and herd behaviour
  5. FOMO (Fear of Missing Out) sentiment drawing in otherwise atypical investors
  6. Media Frenzy fuelling the speculative buying


These are a few factors that typically comprise a classic market bubble in which the path of least resistance is up, oftentimes in a parabolic fashion.  Adoption rates of the product, idea or service usually follows the traditional J-Curve of adoption as network effects kick in and the belief in the asset becomes ubiquitous within society.   Noting Bitcoin’s precipitous fall from grace in 2014 following crypto hacking incidences, such at the Mt.Gox fraud during which Bitcoin lost more than 80% of its value, not all market bubbles follow a smooth ascent upwards.  It’s relevant to note that Amazon depreciated over 94% in 2001, from $113 to below $7, before becoming one of the most powerful companies in the world just a decade later.   However, are we in the early stages such as 1994 during the internet bubble or in the later phases like 2001?  Is Bitcoin the current-day Tulip or the modern internet revolution?  To be sure, Bitcoin may simply represent the symbol of the underlying blockchain technology that runs it and investors are buying Bitcoin as an symbolic access to their intent to invest in blockchain technologies, which is currently closed to fiat currency-based investors.  A closer inspection into the Kübler-Ross Theory can reveal how market investors are currently “coping” with this present-day bubble and where we are in the cycle.  



Kübler-Ross Model Applied to Bitcoin

In 1969, inspired by her work observing terminally ill patients, Dr. Elisabeth Kübler-Ross presented her findings on the 5 common stages of grieving of a patient:  Denial, Anger, Bargaining, Depression and Acceptance.  She later expanded her model to include any form of personal loss, be it from the loss of a job or income, the end of a relationship or divorce, onset of a disease or troubling diagnosis, or even minor losses such as that of a favorite sports team or political election.   In each of these cases, humans portray a very similar pattern in their approach to confronting troubling or unwanted news, exhibiting a range of emotions in the process before accepting the outcome and moving forward.  In the case of Bitcoin, the polarization of the subject from market pundits and Nobel laureates to evangelists and early-adopters has evoked a range of emotions that most likely fit one of these 5 stages of the Kübler-Ross Model.


Denial – The first stage of Kübler-Ross is Denial, the belief that the diagnosis, or in this case the concept of digital currency, makes no sense and it’s a mistake or sham.  We find many Nobel laureates, financial heads and scholars on this side of the discussion as high-profile academic scholars pronounce Bitcoin “should be outlawed” and "Bitcoin is successful only because of its potential for circumvention. It doesn't serve any socially useful function."  While it is not tangible, the economic use of Bitcoin is that it facilitates easy transactions, reducing the friction incorporated into the financial system.  The threat blockchain technology poses to the financial sector – the epitome of a rentier intermediary – is severe as financial transactions will become frictionless removing the need for go-betweens like Western Union, MoneyGram or large banking institutions when sending or wiring money.  The digital economy is over $3 Trillion in size and cryptocurrencies seem primed to disrupt the way money flows around the world. Thus, this Denial from select participants is understandable as Bitcoin, and more importantly, blockchain, poses a threat to the very existence of once-thriving businesses as skeptics, academics, central bankers and executives refuse to believe Bitcoin has any future whatsoever.  


Anger – When an individual recognizes that denial cannot continue and the diagnosis, or new product/idea/service, is here to stay, they become angry, choosing to vent frustration against a situation they cannot control.  If that individual has a platform to showcase this frustration and is willing to express this anger, they typically won’t shy away from doing so, especially when they’re institutionally against the concept.  This is particularly the case for Jamie Dimon, head of JP Morgan Chase, who as the leader of a global financial institution has significant skin in the game – that is, his business is certainly under fire by the rise of Bitcoin and blockchain technology.  "if you're stupid enough to buy it, you'll pay the price for it one day," Dimon has been on the record as saying, followed by “If any JP Morgan employee buys Bitcoin, they’ll be fired,” the ultimate vehement statement against Bitcoin.  He went so far as to say "The only value of Bitcoin is what the other guy'll pay for it. Honestly I think there's a good chance a lot of the buyers out there are jazzing it up every day so that maybe you'll buy it too, and take them out.”  Clearly, the frustration and anger resonating from one of the world’s largest banking heads on the most polarizing subject of today exemplifies the characteristics of the Anger phase of the Kübler-Ross Cycle.


Bargaining – While JP Morgan has been staunchly against the product, other financial institutions have bargained to see how it could be incorporated into their business.  The Chicago Board of Exchange recently launched Bitcoin Futures on their exchange, soon to be followed by the Chicago Mercantile Exchange, and Goldman Sachs has been quick to offer derivatives to their clients for investment purposes.  Lloyd Blankfein, Head of Goldman Sachs, has been on the record as saying, “Now we have paper that is just backed by fiat…maybe in the new world, something gets backed by consensus.”  Even though Blankfein doesn’t personally hold any Bitcoin, he isn’t willing to reject the digital currency just yet and he can envision a world in which Bitcoin is a form of currency.  Meanwhile, Citigroup and Morgan Stanley are patiently waiting on the sideline, deliberating whether to market such an exotic & toxic, but potentially wildly lucrative product given its volatility, to their customers.  And even though Dimon is against cryptocurrency itself, JP Morgan has adopted blockchain technology, known internally as Quorom.  Finally, the Central Bank of Brazil is researching ways to incorporate blockchain within their processes of facilitating billions of dollars of daily transactions.  These financial institutions are clearly in the Bargaining phase of the Kübler-Ross Cycle, deciding how to co-exist with this new technology.


Depression – The fourth stage of the Kübler-Ross Cycle is the Depression phase, typically characterized by hopelessness, despondency and feelings of giving up.  For all the evangelists and detractors of cryptocurrencies out there, there’s a large part of the population and financial community that is sitting silent, despondent and undecided on how to face this new reality.  What if Bitcoin actually becomes the world’s universal currency despite measures to curtail its ascent? What if fiat currencies, which are only backed by the full faith of a government ever since Nixon unilaterally cancelled the gold standard under the Bretton Woods agreement of 1971, will be worthless 20 years from now? After all, we’re currently living in the digital world with a $3 trillion digital economy, why shouldn’t we have digital currencies?  And with only a fixed supply of Bitcoins, assuming the world continues to have inflation and Bitcoin becomes a global currency, wouldn’t inflation become incorporated into the currency itself? These are the questions investors and many investors sitting on the sidelines are asking themselves.  Even more, those forward-looking Bitcoin believers who invested early but jumped off the bandwagon when it collapsed in 2014 are amongst the most depressed as they feel they’ve missed their opportunity and can’t possibly stomach the thought of jumping back in after witnessing its precipitous rise.  After being a long-time skeptic of Bitcoin and now watching its meteoric rise and acceptance on the CBOE Futures Exchange, Jamie Dimon has been awfully quiet lately, perhaps transcending into this despondent stage of Depression.

To be sure, Bitcoin’s utility as a medium of exchange is still very limited as it’s not readily accepted for many transactions.  While there might be more usage of cryptocurrencies in the future, it may be inconceivable for governments to allow the widespread adoption of them.  Governments have a strong reason to avoid embracing the cryptocurrency craze as they want to keep government-backed currencies as they do not want to give up their ability to control policy levers such as money supply and fiscal policy.  Without a strong hand over the issuance of currencies, Central Banks and monetary policy will be outside the realm of authorities, which Bitcoin innately undermines. For this reason, the government of China, which seeks to control almost every aspect of their economy by implementing measures such as currency controls, has outlawed and banned the use of cryptocurrencies. South Korea recently announced its intention to impose capital gains taxes on cryptocurrency transactions.   It is not inconceivable that other governments follow suit in this ban or they may opt to pose high tariffs on any transaction, usurping the ability of Bitcoin to gain widespread adoption.    


Acceptance – The final stage is the Acceptance phase during which emotions begin to stabilize as one accepts his new reality of perhaps an unwanted but very real change in his life.  This is the stage at which potential investors, after performing due diligence and cycling through the stages leading up to acceptance, open a digital wallet and decide to invest in this new reality.  The fact is, even if many institutional investors, say Blackrock or PIMCO, had already arrived at this stage of acceptance and are set to allocate just a small percentage of Assets Under Management into this new asset class, it had been very difficult to invest any meaningful amount into Bitcoin before its listing on the CBOE.  Whether its arrival as an official Future contract marks the high point, as skeptics now have an instrument to implement their beliefs, or open doors to a new class of investors, Bitcoin – for better or worse – has gone mainstream in the Financial Markets.  


It’s hardly surprising that many early adopters of Bitcoin as a currency reside in countries where monetary policy is defunct or have currency controls (Venezuela, Zimbabwe, China) and where transactions have been difficult to come by (narcotics, black market) in legal terms.  While Bitcoin is not the only Cryptocurrency in the digital world, as more ‘currencies’ are created every day, it has assumed the leadership position as the first widely-accepted crypto currency (Bitcoin has roughly 7x the market cap of 2nd-place Ethereum) and offered on retail exchanges like Coinbase, Bittrex and Gemini.  However, its real appeal may be the blockchain technology backing the cryptocurrency mania – that is, the de-centralized, publicly distributed ledger accounting for all transactions.  In order to invest in any new blockchain companies or technology, investors must own a cryptocurrency, be it Bitcoin, Ether or another coin created from an ICO.  That is, traditionally dollar-based or fiat currency-based investors cannot and do not have access to revolutionary blockchain companies and technologies which only accept investment in the form of cryptocurrency. 


On the History of Money

A quick history on the concept of money reveals that society has frequently used unconventional assets a 1) store of value 2) medium of exchange and 3) unit of account, the three basic functions of sound money.  These unconventional assets include sea shells, cigarettes, stone wheels, salt, teeth, rocks and in present day, paper.   The underlying tenant of what makes something “money” is that a large consensus of people recognizes it as such and is willing to transact with it.  After all, gold was just another near-useless stone before society came to recognize it as a valuable asset and symbol of money.  Thus, while the current volatility of Bitcoin makes it an unlikely candidate as a store of value and it still has a low adoption rate amongst consumers and retailers, it is quickly gaining traction as money services such as PayPal and Stripe incorporate into their business and payroll-provider ADP is currently reviewing payroll options to include paying salaries in Bitcoin.  At the same time, banks and financial institutions are creating their own private cryptocurrencies to rival public cryptocurrencies like Bitcoin.  Bank of America, the second largest bank in the United States, recently won a patent to create a unique, automated cryptocurrency exchange system that would convert digital currencies into others. As consumers and end-users bargain over how to incorporate Bitcoin and the rate of adoption grows, Bitcoin will eventually become more stable in price – two factors that should go hand-in-hand – as Bitcoin establishes a firm reputation as a unit of money.


Bitcoin is to Blockchain what Netscape was to the Internet

A closer inspection into the most recent technological bubble, the internet, draws many parallels to the rise of blockchain technology.  Comparable to Bitcoin as the front-runner of new technology, there are similarities with how people in the mid-1990s viewed Netscape Navigator, the world’s first commercial Web browser, as it was synonymous with the Internet.   Similar to Bitcoin, investors believed Netscape would be the big winner in the new Internet era driving its market valuation to nearly $3 billion by the close of the first day of its public listing in 1995 only to see Netscape succumb to other competitors (Explorer, Chrome, Firefox, etc.) and ceased to exist nearly a decade later.

Similar to the public’s perception of Netscape in the 1990’s and it association with the Internet, there is a need to differentiate between Bitcoin and Blockchain. However, without many outlets to invest in ‘Blockchain’ as a concept and as Bitcoin represents the purest form of doing so, it will continue to garner more assets as the portal to the blockchain world.  But make no mistake about it, the real hype should be deservedly placed on the revolutionary Blockchain technology rather than Bitcoin, which may soon be this decade’s version of Netscape.

Source: Bloomberg



While many government authorities, central banks, financial institutions and investors are still struggling to come to terms with the new reality of Bitcoin and cryptocurrencies, the overwhelming majority believes in the power of Blockchain as a revolutionary technology.  Blockchain can be used for a wide variety of applications, mostly in the form of replacing a middleman, such as tracking ownership rights or the provenance of documents, recording the transfer of digital assets and transforming the way elections are conducted.  As a simple use-case, the transfer of property involves significant friction including the need to purchase Title Insurance to assure the new homebuyer gains rightful entitlement to the property for a significant fee.  The fact that over 30% of records covered under Title Insurance are, in fact, incorrect poses a keen application of the decentralized ledger technology of Blockchain. The number of believers accepting Bitcoin, the primary investment vehicle for this new technology, continues to grow exponentially, as evidenced by its adoption across various payment platforms, not to mention its asset price.  Any venture capitalist or angel investor hoping to capture extraordinary gains in blockchain technology must invest in Bitcoin, Ether or a similar cryptocurrency, perhaps through an ICO (Initial Coin Offering).  That is reason in itself to believe Bitcoin and cryptocurrencies have staying power going into the future. 


While it does not yet exhibit the common and necessary characteristics of bona fide money - unit of account, medium of exchange, store of value – recent developments such as the opening of Futures contracts on CME and CBOE make the likelihood of achieving a global currency status much more likely as volatility in the ‘commodity’ should, and eventually will, decline.  Furthermore, the one defining characteristic that it does share with traditional fiat money is that its value is backed by the common consensus surrounding its existence.   That is, the US Dollar only has value because the public consensus believes it’s worthy and they’re willing to transact and exchange with it.  This is the next critical test that Bitcoin must pass in order to convert more deniers and skeptics into adopters and believers.  Unless, of course, governments decide to crack down on cryptocurrencies for fear of losing control of their authority and monetary independence by imposing strict taxes or outlawing it completely.  Not coincidentally, the rise of Bitcoin itself was partly borne out the response to the highly experimental and unprecedented monetary policy actions created by the Federal Reserve and Global Central Banks, implementing Zero Interest Rate Policies (ZIRP) and Quantitative Easing (QE) which called the validity of government-issued currencies themselves into question.

In terms of where Bitcoin goes from here, comparable valuations versus other comparable ‘stores of value’ such as Gold place Bitcoin towards the realm of $100,000.  Its current ‘market cap’ has just recently surpassed that of Citigroup, a global financial institution.  However, as with all assets, its future resides in the public consensus and how many investors accept this new reality by investing in the asset.  The fact that skeptics and non-believers can now put their money where their mouth is assuages at least one hallmark of a classic bubble (the inability to short the asset) which is a good thing and allows a large number of investors to easily participate in the upside or downside.  Undoubtedly, there will be new derivatives including ETFs available to future investors, fully allowing a rational consensus to be formed on the subject.  In comparison to the internet bubble, which ended in joys and tears for many, the most appropriate comparable to Bitcoin is that of Netscape, which ushered in a new wave of internet technologies just as Bitcoin is the face of innovative, revolutionary Blockchain technologies.  That would place today’s cryptocurrency and blockchain landscape closer to 1995 than 2001 by comparison, indicating that we could just be at the forefront of monumental technological change.  Undoubtedly, there will be winners and losers in this space but one can be assured the regulators will come calling if retail investors are put in harm’s way and suffer large losses. In the meantime, no matter what their opinion is on Bitcoin, investors will continue to cycle through the Kübler-Ross stages – Denial, Anger, Bargaining, Depression, and Acceptance – while the investment pendulum swings on this uber-polarizing, new and exciting asset class.


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