The Bitcoin Bubble – A Crypto Market Boom or Bust?
“Is this the end of cryptocurrencies?’, this is what you’ll hear as people see a bubble in Bitcoin. They’re quick to spell its doom as soon as a major dip stirs the crypto market. Its haters share a similar message: it’s an overvalued asset that’s bound to crash soon.
If you look beyond most of the mainstream sources, you’ll see a brighter future for the digital asset. Contrary to popular belief, the world is proving just how useful and valuable cryptocurrencies are. We can even look at recent events to prove it!
Let’s start by talking about what this term even means. Then, we will go through the arguments that support the imminent crash of this digital asset. More importantly, we will look at different factors that prove that the crypto bubble pop is actually the market warming up!
What is a “bubble”?
In economics, this refers to the drastic crash of an asset’s price after rampant speculation has significantly increased it. This happens once people realize its true value.
Believe it or not, the first asset bubble happened in 1636. It started in the Netherlands where the Tulip flower became a symbol of affluence. That’s why many people wanted to show it off in their front yards.
People wanted to show off their social status, so demand for the flower skyrocketed. As the buying frenzy went on, many people started to buy with leverage.
In other words, some of them borrowed money just to get their hands on this flower. They thought the prices will keep going up forever, so they believed they can only profit from this.
The speculation eventually came to a standstill as people couldn’t figure out if the prices can keep going up. That’s when the prices crashed in 1637, causing many people to lose money on their investments.
The Dot-com bubble
Besides Tulip Mania, we can point out a more recent example that involved enthusiasm over the start of the “Internet Age.” This was when the first internet companies emerged.
Unfortunately, they relied on speculative investing to build funding. Similar to the Tulip craze, people overestimated the market value of these internet stocks.
Eventually, the stock prices started to crash as many of these businesses closed down. This also caused people to lose a lot of money. The Dot-com bubble drove some into bankruptcy.
The event wasn’t all bad, though. A lot of the major tech firms like Microsoft and Amazon stayed long after the Dot-com boom and prospered.
The coming stock market “superbubble”
We may follow up the infamous Dot-com bubble soon, says Jeremy Grantham, chief investment officer for Grantham, Mayo, & van Otterloo (GMO).
The top hedge fund manager told CNN that stock market value may soon crash significantly. He points to the Federal Reserve’s move of cutting interest rates to zero as the main cause.
This encourages people to borrow money, so they end up spending more than ever. In turn, companies gain increased profits, driving up their stock prices.
This boosts stock market value which encourages people to spend without much worry. Once this superbubble bursts, we will see an impact rarely seen in history.
Grantham explained that a superbubble caused the Great Depression in 1929. The US housing market crash that caused the 2008 Global Financial Crisis also came from such an event.
He sees a similar phenomenon coming for the stock market. Once it does, people will grow frustrated and sell their stocks en masse. Eventually, this reaction may rapidly undo past economic gains.
Read More: How To Keep Calm During A Crypto Crash
Will this happen to the cryptocurrency market?
Many people have been spelling doom for bitcoin and other digital assets. They have valid reasons for this outlook based on recent events.
For example, Kazakhstan hosted many crypto miners after China’s crackdown on digital assets. Their operations caused an 8% jump in domestic electricity consumption.
In response, the government decided to limit the power supply for crypto mining. If the power grid came under stress, it would cut off energy to these operators.
Worse, freezing conditions can harm the electric grid and crypto mining equipment. As a result, the price of bitcoin fell from $47,383.65 on January 4 to $40,814.58 two weeks later.
Then, you can see the possibility of a bitcoin crash once you look at bitcoin’s all-time high. On November 10, 2021, the BTC price was $66,953.34 with a market capitalization of $1,226,431,510,693.
That’s nearly a third of the total value just gone. If you follow current trends, you can easily assume that the cryptocurrency market is about to end.
Is a real estate bubble coming?
You have to look at this from a much broader perspective. While people focus on the so-called decline of the crypto world, you can find volatility in other assets.
We’ve talked about stocks and digital tokens, so let’s turn our attention to the real estate market. Many people saw the COVID-19 pandemic as a great time to buy houses.
Homeowners have been failing to keep up with their mortgage payments. As a result, they forfeit and leave the debt obligation to their lenders. This meant creditors want to sell the properties and cut their losses as soon as possible.
That’s why home prices dropped for many areas in the United States. Meanwhile, the Fed kept interest rates low, making home purchases more appealing than ever.
We can see this phenomenon happening worldwide, but the overall market value may crash one day. Once it does, we might see something similar to the Dot-com bubble, except on a global scale.
Is gold the best choice right now?
When investors see every asset fail, they believe that gold will always be a solid hedge against economic uncertainty. After all, it served this purpose time and time again.
They will be eager to point out that societies throughout history have prospered because they used gold as stable money. Then, governments sullied it by mixing it with other metals.
For example, the Roman Empire did this to increase the money supply. In turn, it has been able to fund its military conquests and territory expansion.
This was one of the early cases of inflation caused by the national leadership. Empires crumbled as they distanced themselves from gold, so gold bugs like Peter Schiff stand by it.
The combination of major events like the ongoing COVID-19 pandemic and the recent Ukraine-Russia conflict is challenging assets, even well-known inflation hedges like gold.
As these dire situations escalate, we are likely to see the price of this precious metal swing wildly. Despite the feelings of gold bugs to government intervention, it may harm their portfolios too.
This happened in the 1930s when the United States government seized the gold of its citizens. Now, we see other countries like Pakistan do the same.
Prime Minister Imran Khan is considering a proposal to borrow gold from its citizens to bolster its foreign exchange reserves. Pakistan is currently deep in debt, especially due to COVID.
All countries had to do the same to keep their economies afloat during the lockdowns. Soon, we may see more countries seize gold from private investors.
Why the crypto bubble is actually a crypto boom
"The Bitcoin bubble may ultimately turn out to be a distraction from the true significance of the blockchain." https://t.co/iPO8ZCTMb0
— The New York Times (@nytimes) January 17, 2018
We aren’t likely to see a bubble forming for the cryptocurrency market anytime soon. While it had experienced major crashes, digital assets are likely to grow in long-term value.
People often say that the cryptocurrency space may soon fall because they don’t realize its value. It’s easy to assume this if you only look at mainstream news about the asset.
Reports often focus on the people who made millions of dollars within a short period because of bitcoin. If not, it pays attention to the shady crypto projects, especially those related to NFT art.
What’s more, they often assume the cryptocurrency market is just bitcoin (BTC). It is the first digital coin that runs on a decentralized network, but we now have more kinds of crypto.
More use-cases of crypto emerge
Look deeper into the crypto space, and you’ll see a world of technological innovation brought by digital gold. For example, it has given the world decentralized finance that improves money transfers.
You can see with RippleNet which uses the Ripple (XRP) cryptocurrency. It partnered with SBI remit and Coins.ph to provide on-demand liquidity (ODL) service in Japan.
Various countries rely on crypto transactions to save them from hyperinflation. This is why people in Venezuela use RSR coins to secure their finances.
Crypto adoption is spreading worldwide
More countries want to adopt cryptocurrency. The biggest pioneer in El Salvador as it allowed bitcoin as legal tender. Yahoo Finance reported that it used the profits to pay for a pet hospital.
Now, Australia sees cryptocurrency as the way to secure its financial future. We may see Mexico follow in their footsteps as the bitcoin and other cryptocurrencies unleash their potential.
The world is just waking up to cryptocurrencies, and the Bank of America knows this. It says a crypto winter is unlikely as the world of digital coins grows and develops.
Should you invest now?
Are we in a #cryptocurrency bubble? Our latest issue of Finance & Development magazine explores virtual currencies through the taxonomy of financial bubbles developed by legendary economist John Kenneth Galbraith: https://t.co/AJEZ0GC1gk pic.twitter.com/WR14cuhEIU
— IMF (@IMFNews) July 16, 2018
Is this the time to start your journey to become a crypto trader? That’s up to you. Remember that crypto trading poses a lot of risks, even before the pandemic and global conflict.
It’s not a good idea to start just because you read a convincing article on the internet, even this one. You might be tempted after seeing the promising reports on social media.
Instead of getting swept by the hype, calm down. Get into the reasons why you want to start crypto trading in the first place. What will digital currency do for you?
If you don’t have a clear answer, perhaps you should reconsider your decision. Otherwise, provide more details for your investment objectives.
Then, check the current situation of the market. At the time of writing, the Ukraine-Russia conflict was ongoing as the world is still struggling to recover from the coronavirus.
Investors see the declining prices as a buying opportunity. Yet, it may fall deeper if you enter the market now. It’s impossible to time the market, so this is a risk you will have to accept.
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Final thoughts
There’s always a chance that you’ll lose money in any investment. Scams are the only ones that claim to have no risks! That’s why you should only use the money you can afford to lose.
Note that this article is not meant for investment advice. Speak with a financial advisor for assistance. Such a professional can help you build a portfolio that fits your goals.
Also, it would be best to learn more about cryptos. Even if you don’t want to invest, it will have a huge impact on our long-term future. Start by reading more articles from Inquirer USA.
