Bitcoin – Is it a Bubble?
Bitcoin has always come under suspicion of being a bubble ever since its creation. The notion grew in strength even more after its sudden burst in popularity. Investors are always concerned about the risks of investing in the crypto market, especially now after the severe drop in prices. At the same time, everybody has a fear of missing, and nobody wants to lose all their money. Hence, everyone is asking the same question; is Bitcoin a bubble?
Before getting to the question, it is important to understand what an economic bubble is. Also known as speculative or market bubble, these are traded assets whose price during trade heavily exceeds the asset’s inherent value. It is a situation when the market price of the asset seems high enough without any basis to be viewed as problematic. A bubble can only be identified after it has burst, which means after the prices of the assets have suddenly crashed.
The main reason why Bitcoin is being considered as a bubble is due to the tremendous conflation of its price and the harsh drop. It has shown all the signs of being a bubble. According to Bloomberg, Bitcoin might have been a bubble that just burst. As mentioned above, bubbles can only be identified in retrospect. In the events leading up to the great depression, the New York Times reported that stocks had reached a permanent high. In a few days, the prices would fall by 89%. Something similar happened in the world of Bitcoin. While blockchain is a valuable piece of technology that will have many serious applications in the future, Bitcoin, as an asset, began to bloat in price. Many believed that just because Bitcoin is supported by the blockchain technology, it is immune to phenomena like bubble and corrections. The price of Bitcoin fell by more than 80%.
This in no way means the end of Bitcoin or cryptocurrencies. Their main value is that they are a much more efficient form of currency and work on more efficient and secure systems. Bitcoin has been through several crashes and bubble bursts in the past, such as the one in 2011. While the bubble may have burst, the price of Bitcoin at the moment is more than triple of what it was when the year 2017 began. Most of the early investors have not suffered critical losses and are in good shape.
Andrej Burcev got into Crypto while completing his Bachelor of Science at Kingston University in London. Andrej now works as Senior Software Engineer. He is currently collaborating and writing articles for TheDailyCoins with his focus in innovative technology and its cultural and social influence.