Bitcoin’s Bubble of 2018: Is the Crypto Market in Double Trouble or Just Washing Out the Rubble?
Over the course of the past couple of years, the word “cryptocurrency” seems to have seeped into the consciousness of more than half the planet. Especially all through 2017, digital currencies such as Bitcoin (BTC, Ethereum (ETH) started to gain immense traction both from casual enthusiasts as well as large scale commercial entities.
For your average person, Bitcoin seems to represent a “new form of money” that is based on the principles of transparency and decentralization. However, for investors and traders, Bitcoin is much more of a profit-based entity that can also serve as a long-term store of value.
A Brief Snapshot of the Digital Asset Market
From a historical perspective, we can see that a lot of other assets such as stocks, bonds can be likened to Bitcoin. However, the core difference lies in the fact that the aforementioned asset classes have some form of physical backing to them. In the case of BTC, the digital asset only possesses value because people perceive the currency to have some sort of monetary power.
With that being said, every asset class is subject to something that is commonly known as the “bubble effect”, wherein, based on price inflation and other secondary factors, a particular asset can sometimes go up in value because of its “perceived worth”. However, as and when such “bubbles burst”, the market at large is affected quite substantially .
What Causes the Formation of an Economic Bubble?
As far as market analysts can recall, financial bubbles have always sprung up in situations where “speculators purchase a financial asset at a price above its fundamental value with the expectation of a subsequent capital gain.”
Now, as we enter close out the decade, it appears as though more and more beginners are starting to come into the stock market directly. This has been made possible thanks to the growth of the financial derivatives market cover the course of the past 25 years or so.
Another core area that has been found to fuel speculative fire within any industry is the selling of assets that investors do not already own. This concept is commonly referred to as “short selling” and if used wisely can help people procure amazing profits (within short periods of time).
So How Valuable is Bitcoin Really?
As many of our readers probably remember, Bitcoin’s value remained quite flat around the $500 mark for around 4 years straight (starting in 2012). Following this period, as media attention on the digital asset increased, so did its price. In the span of less than 12 months, Bitcoin was able to scale up to an all time high of around $20,000, following which the altasset sector as a whole started to tumble (culminating in BTC’s latest price of around $3,900).
This steep rise and fall has led many commentators to proclaim that Bitcoin represents a classic case of a financial entity being subject to a “bubble” . However, with that being said, it is worth noting that BTC’s so called bubble has not burst, since there has been no rush from BTC hodlers to dump their holdings. In fact, despite the negative pressure being faced by the crypto sector, Bitcoin buying continues to increase with each passing day.
What does the future hold for Bitcoin?
Even though the current economic climate seems perfect for buying some BTC, there are a couple of things one should bear in mind while navigating through today’s tough crypto terrain. For starters, before plunging head in, potential investors should take some time to learn about the altcoin space (so as to minimize the impact of irrational profit expectations). Secondly, investors also need to understand that owing to many of the risks that are faced by any asset class, one should not invest more money than they can afford to lose.
As the Bitcoin market continues to reach new lows everyday, it appears as though more and more investors are starting to ask the question “Should I buy Bitcoin right now or not?”. The answer to that is quite subjective, especially since it has recently become quite fashionable to have a strong opinion about everything related to the crypto space.