Even those who’ve never invested in Bitcoin before are starting to keep a closer eye on its progress. That’s because the currency has recently soared in value, causing the people who own Bitcoins to get excited and wonder how much more the worth could climb.
There are even instances where people with no former interest in cryptocurrency feel now is the time to start becoming involved in the Bitcoin boom. But some onlookers wonder, will the bubble burst, and if so, how long from now?
Bitcoin shows many signs of a classic bubble
Derek Thompson, who covers economics for The Atlantic as a senior editor, notes it’s hard to determine if Bitcoin is a bubble because it’s an entire industry. However, he thinks Bitcoin’s recent patterns are akin to other famous bubbles that burst — such as the dotcom bubble.
Bitcoin is a topic on everyone’s tongues and minds. Investors make huge life decisions based on Bitcoin worth, and they often make impressive predictions about what’ll happen in the future. People also made those actions in association with other things that went bust, leading individuals to caution history will repeat itself. They say the only thing they’re not certain about is when it’ll happen.
Bitcoin volatility is a constant
One of the reasons why people are buzzing about Bitcoins is because their value has skyrocketed so much. At the beginning of 2017, a Bitcoin was worth $1,000. Now, its value is $5,000. Then, there was a point in September where the per-coin value was nearly $5,000, but it tumbled to $3,200 only two weeks later.
For a broader perspective though, it’s necessary to realize that altcoins — any cryptocurrency that’s not Bitcoin — also fluctuate. That reality could theoretically contribute to worries that Bitcoin is a bubble. They might assume that Bitcoin is as volatile as all the other cryptocurrencies, but compiled market statistics actually indicate it’s the most stable.
Even so, some people who intelligently track the market expect volatility. Dave Birch, founder of Consult Hyperion, a leading consultancy in the field of electronic transactions, has even said, “One does not invest in Bitcoin, one gambles in Bitcoin.”
He backs up that belief by advising people to only invest as much as they’re prepared to lose. If individuals actually did that, the possibility of a bursting Bitcoin bubble wouldn’t be so frightening. Instead, many people have moved all their investments over to the Bitcoin world.
Anonymous transactions and lack of spending options cause raised eyebrows
A characteristic that attracts many people to Bitcoin is the ability to send and receive money without revealing personal information. They also love the lack of government regulation and feel that by investing in the Bitcoin market, they have more financial freedom.
However, Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, calls the idea of private Bitcoin transactions questionable. He doesn’t believe the world’s governments will allow the lack of personal identification information associated with Bitcoin to persist forever and brings up how in the US. The IRS has already demanded some user records associated with the Coinbase website.
Furthermore, Chainalysis is a company that specializes in helping identify the people who own the digital wallets used to store Bitcoins. The discovered information reduces fraud and money laundering.
Dalio also mentions the high amount of speculation and the lack of spending options for Bitcoin owners. He believes the concept of Bitcoin could work because of that speculation and that people don’t have enough ways to use the Bitcoins they own. For those reasons, he agrees there is a Bitcoin bubble, and that’s the only logical conclusion considering the rapid rise of the Bitcoin’s value.
Market control in the hands of a small number of people
Another thing that could make the Bitcoin bubble burst — or at least make investors panic — is the fact that approximately 1,000 people hold about 40 percent of all Bitcoins. The individuals tied to large amounts of the cryptocurrency are often referred to as “whales.” If they choose to suddenly sell a lot of Bitcoins to take advantage of high market prices, other Bitcoin owners notice.
There are also fears the whales could coordinate actions between themselves and work together to make the market fluctuate. Because the laws surrounding cryptocurrency are not concrete, there are uncertainties about what kind of punishments they might face for doing that.
Cryptocurrency founder says Bitcoin is not a bubble
Although it’s not hard to find plentiful online resources asserting there’s no doubt Bitcoin is a huge bubble soon to burst, some people provide alternative views. One of them is Ben Davies, co-founder of another cryptocurrency called Glint. He thinks people are not looking at the bigger picture of Bitcoin, and that’s causing them to incorrectly see it as a bubble.
Davies also thinks the way people often compare Bitcoin to the bubble associated with tulip bulbs doesn’t hold water. He notes that although the prices of tulips soared then experienced a sharp downturn, that historic event is a “poor comparison. He asserts the price increases associated with tulips were not similar to the cryptocurrency phenomenon. However, even Davies admits Bitcoin “has all the hallmarks and antecedents that are the precursor to a bubble.”
This is just a sampling of why so many people strongly believe Bitcoin is a gigantic bubble that’s a substantial concern. To avoid getting into the kind of trouble that could potentially ruin their lives, investors should continue studying the market regularly and seeing how the Bitcoin value fluctuates.
Besides, it’s smart to have a plan in place for if or when the bubble bursts. Many of the people who were the most severely affected by previous bubbles that popped were those who didn’t stop to think “What if?” and figure out what to do if the worst happened.
Failing to do so could mean a person is ignoring history.