Is Bitcoin in a bubble? That is question on many peoples minds, especially those reading certain headlines.
As Bitcoin continues on a bull trend the question of bitcoin being in a bubble continues to arise. There are multiple factors attributing to this and we are going to go through a balanced argument and come to some kind of conclusion. Everybody has their own opinion in the market, some argue for the bubble, some against, others are impartial.
Bare in mind, I won’t get to my opinion until the end. I am going to highlight some main arguments being made for both sides.
So let’s look into some things pointing to Bitcoin’s bubble.
Yes, There Is A Bitcoin Bubble
- Historically when asset classes, stocks, companies etc rise at an alarming rate they are in for a harsh come down. There has been a lot of talk about the tulip mania centuries ago to explain what is happening. The story in short; there was a time where tulips became very popular and a hot commodity. High value was put on them and they were being traded for goods/services and certain individuals were even paying a high price for them just to have. The tulip bubble burst and they became a regular flower once again. Some are saying this is the same type of thing with Bitcoin, a time of hype and headlines driving the price. I will explain my personal opinion later but tulips make for a terrible form of currency, so it’s much different.
- There is a lot of speculative investing going on. People are not getting into bitcoin for it’s first purpose; as it’s made for transactions and illuminating the middle man when moving value digitally. It is not being used for your morning coffee or bacon at the store. Many individuals are getting involved on the premise that it will continue to rise and not necessarily understanding its underlying purpose.
- It isn’t real. Gold is physical, resilient and hard to lose. Bitcoin is in digital space, easy to lose and even if you cold store it (in a offline wallet) securely and is not that easy to use. This bubble stems from a lot of hype and there will come a pop once the trend dies off.
No, There Is Not A Bitcoin Bubble
- Bitcoin is a true supply and demand platform that is not manipulated like central markets. The term ‘bubble’ has been applied to centralized markets which have been stretched and over leveraged through a fiat system which operates differently.
- There is a limited supply. Scarcity is built into the bitcoin framework as there will only ever be 21 million mined. As I write this, just over 16 million have been mined, so stretching this network past a certain capacity is not possible.
- The security of the blockchain is high level. The decentralized network works well with security and extremely difficult to hack because of how verification works in the network through consensus of machines all over the world. Security helps with trust. Trust is the aim of the game with any currency.
- The world has never seen something like this, a decentralized value of exchange, which the world is slowly waking up to. The fact the market is reacting like this is something which could not be predicted.
My Conclusion | Is Bitcoin In A Bubble?
I see an interesting pyramid that has occurred over the years. Tech people are at the top of the pyramid as they have been pushing and holding cryptocurrency because they understood its value and the fact it is a solution provider. Those people understand code and crazy computer crypto graphical stuff. The next people are not the coders, but big picture thinkers that can see the power of this and get behind it, buy it and hold it. The next set of people are everyone else who waits for it to get big, or somewhat big, and then jump in. I believe I am somewhere in the sentence before the previous one. All things considered, we are still at the very early stages on this industry. Just like the internet in the 80s started out with a lot of hardship and different views, we are in a much different place with 4G data and wifi hot spots. The same change and innovation will happen with blockchain technology and decentralized currency, it’s just a matter of where it’s heading. The future is an exciting place.
**Don’t get me wrong, it is an amazing time to get into the cryptocurrency market. Speculation comes when this happens, “I’ll throw a little money in bitcoin because it seems to be doing well, let’s see how it goes in the future”. That is all well and good, but that’s speculative. What I am trying to say is that the uninformed using this as a pure investment tool could have a speculative mindset. For me, bitcoin is a borderless currency that governs itself, I like having some of the as my currency.**
Furthermore, more and more hedge funds are getting into this space to diversify their portfolios into the digital asset space. That’s always an interesting factor when looking at trends and money being injected into the market.
In that sense, I believe that Bitcoin is in some kind of bubble as I think a lot of people that are involved don’t truly understand what they have in their hands and they are speculatively investing because they see the hype, growth, upwards trend etc. That is why I make a lot of content to hopefully help people understand this space either before or after they get involved with cryptocurrency to know that there are a lot of factors in play going forward.
At the same time, Bitcoin is a beautiful supply and demand market that reacts very authentically with the factors attributing to it as it’s decentralized and cannot be manipulated. The term “bubble”, like I mentioned above, has always been applied to over stretched markets through our centralized systems. We have never seen this type of movement or market before. The housing market in 2008 collapsed because it was over stretched and was far from authentic or transparent. If the ‘Bitcoin bubble does burst’, it will be for very different reasons which is why I don’t think the general term ‘bubble’ can be truly tied to what we have here.
Analyzing trends; supply is capped, demand is rising, security is crucial, trust is paramount so it’s interesting to think what will happen in Bitcoin’s future. Keep in mind, after every bear run (increase in price over time), what happens? The bear comes rolling down the hill (decrease in price). And there is nothing wrong with that, the market goes up and down, but thinking what will happen in the years to come is the real question?
Bitcoin has a bumpy road ahead of it as developments and innovation will take place to improve what it is. All I know is we are at the dawn of one of the largest transfers of wealth in human history, whether that is with bitcoin, or something else in this decentralized space.
I hope you enjoyed the article. Leave a comment and let me know what you think.