E conomists have long said that instability of cryptocurrencies checks all the boxes of a market bubble. Investors make decisions based on Bitcoin value and they repeatedly make predictions about what’s going to happen in the future.
Bitcoin is the first, and the leading, decentralized tradable crypto asset. Whether it is a good or bad investment is the biggest question now. Bitcoin can simply be utilized as a medium of exchange. The lack of any central authority makes Bitcoin remarkably flexible to censorship, corruption or regulation. It has fascinated a range of financiers, from libertarian monetarists who get benefits from the idea of a currency with no inflation & no central bank.
Even those who have never invested in Bitcoin before are starting to keep a keen eye on its progress. That’s because the currency has earlier increased in value, causing the people who own Bitcoins to get thrilled and speculate how much more the value could climb.
Bitcoin shows many signs of a classic bubble
Derek Thompson, who is the senior editor of “The Atlantic”, notes it’s difficult to determine if Bitcoin is a bubble because it’s a complete industry. However, he thinks Bitcoin’s current patterns are similar to other famous bubbles that exploded — such as the dotcom bubble.
Bitcoin volatility is a constant
At the start of 2017, a Bitcoin was worth $1,000. Now, its value is $8,500. Then, there was a point in December where the per-coin value was nearly $20,000, but it plummeted to $6000 only a few weeks later. This is one of the reasons why people are perky about cryptocurrencies.
For a wider standpoint though, it’s essential to understand that altcoins ( any cryptocurrency that’s not Bitcoin also changes.) That reality could hypothetically add to worries that Bitcoin is a bubble. They might presume that Bitcoin is as volatile as all the other cryptocurrencies, but gathered market statistics, in fact, point out it is the most stable.
Some people who sharply track the market look forward to volatility. Dave Birch who is the founder of Consult Hyperion, a leading electronic transactions consultancy has even said that “One does not invest in Bitcoin, one gamble in Bitcoin.”
He supports that principle by recommending people to the only invest as much as they’re ready to lose. If folks actually did that, the odds of a bursting Bitcoin bubble wouldn’t be so scary. Instead, many people have moved all their savings over to the Bitcoin world.
Lack of spending options and Anonymous transactions
A trait that attracts many people to Bitcoin is the facility to send and receive money without disclosing personal information. There is no government regulation and people feel that through Bitcoin investment, they have more monetary freedom.
Though, Ray Dalio, founder of Bridgewater Associates which is the world’s largest hedge fund, calls the idea of confidential Bitcoin transactions doubtful. He believes that the governments will not allow the anonymity associated with Bitcoin to continue forever. The IRS has previously demanded some user records linked with the Coinbase website.
Moreover, Chainalysis is a company that focuses on helping to recognize the people who own digital wallets used to store Bitcoins. The open information reduces fraud and money laundering.
Dalio also talks about the soaring amount of guesswork and the lack of spending options for Bitcoin owners. For all these reasons, he has the same opinion that there is a Bitcoin bubble, and that’s only a rational conclusion considering the fast mount of the Bitcoin’s value.
Legendary hedge fund investor says Bitcoin is not a bubble
Mike Novogratz who is a hedge fund financier, confirmed that there may be a bubble in bitcoin in some regions but the digital currency itself isn’t a bubble.
Novogratz said that bitcoin and the cryptocurrency market could become the major bubble of our lifetimes.
There were many bubbles in the past around ground-breaking and innovative technologies such as the Internet. The dot-com bubble, for example, overrated projects by considerable margins, with quite a few companies selling at billions of dollars with a domain or an online business.
However, the Internet itself was obviously not a bubble. It has changed every industry on the planet by revolutionizing communication and processing of information. There was a bubble around Internet, as established by the dot-com period; though the technology itself was not a bubble, a fraud, or a scam.
There are many deceitful companies within the cryptocurrency market and projects that work like Ponzi schemes but there are also a few projects that authentically compliment bitcoin by providing technologies or solutions the Bitcoin blockchain network currently lacks.
In the long term, these temporary buys and small bubbles will scatter, through price corrections. If Bitcoin itself is a bubble, it should not be able to survive major corrections that happen at least two times on a monthly basis, as investors and the market fail to adjust to the increasing value of Bitcoin. Bitcoin has undergone many corrections all through its 9-year history and through that, it is rapidly evolving into a more store of value.