What Should You Know About The Bitcoin Bubble?
As of June 11th, 2017, BTC in USD is equal to $3,018.54. In July of 2010, the average price of one BTC in USD was roughly around $0.08. Now we aren’t some sort of crazy genius economy majors or market experts, but that is a pretty huge increase in value!
So, what is the reason that Bitcoin nearly doubled in price at the beginning of May 2017? Well, it might seem somewhat of a puzzle for those of us living in the United States or Canada, but the reason for it is pretty simple: lack of mainstream acceptance. Go shopping in your nearest Wal-Mart and try to pay with Bitcoin. If you don’t hear the cashier say “What is Bitcoin?” then chances are you aren’t in North America.
It seems that the main reason why the price of Bitcoin has skyrocketed over the past few months is the Asian market and its huge demand for this cryptocurrency. The main reason why this demand is being generated is because of speculation. It seems that many clients in Asia are interested in making a quick buck by buying some Bitcoin, letting it rise as high as possible, and selling it off quickly.
Now that it’s July, we can safely say that this is exactly what happened, since the price of Bitcoin started to drop and is currently at $2,436.12 USD. Despite the drop, it seems that the Bitcoin market is still performing rather well. Had this happened to any other form of currency or stock, we would have most likely seen some detrimental post peek results. However, if we look at the past history of Bitcoin prices we should probably be on our toes. A similar situation happened in 2011 and 2013 when Bitcoin prices skyrocketed like crazy and shortly afterwards dramatically crashed.
Bitcoin Boom in Asia
The above-mentioned Bitcoin booms in 2011 and 2013 were mostly localized to the North American region, the US to be specific. Back then Bitcoin wasn’t as international as it has become recently. This global popularity is most likely the reason for our most recent boom last month.
If we look at the prices of BTC across foreign markets, we can easily see the huge demand for Bitcoin that was generated by South Korea on May 25th. At that time, one BTC was equal to 5 million won, which is roughly equal to $4,500 USD, significantly higher than the price of BTC in USD at the time which was about $2,700.
So how this possible, and why is this huge spread happening in the BTC market but not in mature currencies? The answer is actually pretty simple. When trading with mature currencies, exchanging one currency to another is simple and quick. However, since bitcoin isn’t part of FOREX, buying BTC with US dollars then selling BTC for South Korean won and converting them into US dollars is heavily influenced by regulations and logistical obstacles. In other words, it would take far too long for you to complete this trade in order to meet the demand in South Korea.
Additionally, recent recognition of Bitcoin by Japan also played a huge role in last month’s price boom. Throughout its history, every time a government recognizes Bitcoin we all jump with joy because its yet another location Bitcoin can be used freely or with limitations. In the case of the Japanese recognition, they decided to take it a step further and pass a few rules and regulations for how their regulations will be applied to Bitcoin and other cryptocurrencies. The end result is increased interested in Bitcoin by many Japanese businesses that are popular worldwide.
Don’t Forget About Bitcoin Money Transfer
Sending money to another country can be a nightmare. Western Union and money gram are notoriously slow and they charge you an arm and a leg if you want to send the cash faster. It’s a no brainer that Bitcoin is the perfect currency to use for worldwide money transfers.
This is exactly what started to happen, and many companies are offering money transferring services with mostly Bitcoin at a much better rate while offering much better service. The money transfer market is also being dominated by Asia, and North America is representing a very low amount of these transactions. We think that the reason for this is because the USD is the dominant financial currency used throughout the whole globe and making transfers between dollars and other currencies might be cheaper than between two non-dollar currencies. The end result is the Bitcoin based service not being able to undercut as much as with other currencies when working with US currencies.
What is Bitcoin Worth?
There’s a question for you! Oddly enough, it is a somewhat hard one to answer. Its price is highly driven be speculation rather than real world application. So, in a way, it is becoming self-inflated by the same people that are becoming more and more convinced that its price is going to go up. This is a self-fulfilling circumstance.
The thing is, these people aren’t necessarily wrong. At the moment, the total value of Bitcoin is around $45 billion, which is a pretty low sum when compared to trillions of dollars that have been invested into stocks and other commodities. But if Bitcoin becomes the global standard for transferring money across the world, then we will certainly see it continue growing in price and value.
An alternative use for Bitcoin can be as something like gold. Obviously, gold is used in jewelry and electronics, but its primary function is to retain value. What is to stop Bitcoin from retaining value the same way as gold? After all, there are a few benefits to Bitcoin being a value holder over gold: it’s easier to store, no more huge Fort Knox like buildings that cost far too much to maintain when compared to a Bitcoin bunker. It’s also a lot easier to move from one place to another. Forget about armored vehicle transport, all you have to do is press a button.
Bitcoin Bubble Final Words
Bitcoin has plenty of different applications worldwide. As of right now, it is somewhat limited in the worldwide market. This is most likely because of how young the currency actually is. However, one thing is certain: people are interested in this cryptocurrency and for one reason or another it is slowly climbing the price ladder. Just like many other currencies or stocks, it is already starting to experience bubbles, booms, and crashes. The ultimate question is: will Bitcoin survive? We think the answer is yes!