Time and time again, bitcoin has been considered a bubble. This has become more frequent lately due to the rapid growth of the exchange rate — over the past year, bitcoin has risen in price by more than 300%.
Of course, a graph like this makes people wonder:
Are we in a crypto bubble? And if yes, when will it pop?
Let’s try to answer this question by analyzing different opinions. But first, let’s set the stage by answering another important question.
What’s a bubble, really?
The economist Hyman Philip Minsky divided the life cycle of a bubble into 5 stages:
- Valuation
- Time
- Displacement
- Boom phase
- Euphoria
- Profit-taking stage
- The Bust
- Displacement. At this stage, investors start falling in love with some shift in the market — for example, a new technology like blockchain.
- Boom. The phenomenon starts getting more public attention: more people get interested, share the information, making new investors arrive exponentially.
- Euphoria. Media attention gets in, and mass rush purchases begin. Nobody is trying to understand if the asset is “cheap” or “expensive” anymore — they simply buy.
- Profit-taking stage. Here, mature investors start cashing in, while less experienced ones keep holding it, expecting the asset to keep rising.
- The Bust. This is when the bubble pops, and you see a sad unstoppable downward movement on the chart. Game over.
Looking back to the bitcoin chart, the analysts’ concerns become more legitimate —
the bitcoin chart does look bubble-ish.
Let’s take a closer look to understand if it is what it looks like.
Criticism
If you google “Is bitcoin a bubble?”, you’ll see very controversial information.
On the one hand, the crypto believers say the bitcoin bubble signals are false. However, even if you consider yourself a believer, this does not mean that the crypto market is not a speculative bubble.
The bitcoin pessimists’ point is:
bitcoin is "the mother of all bubbles" and its growth may result from a speculative mania. Similar growth patterns preceded many crises in the past, such as the dot.com bubble of the late 1990s and the 2008 housing crisis in the U.S.
Indeed, bitcoin bubble bursts happened before: in 2013 and 2017.
Meanwhile, the bitcoin optimist group believes:
bitcoin will exist even if it falls to $1: when a bubble bursts, it leads to the disappearance or bankruptcy of the assets underlying it, which is not applicable to cryptocurrency.
We compared financial experts’ opinions spoken out in different media to give you a 360° view of the situation.
| 🤬 | 😍 |
| The crypto field is a mess: it is overflowed with speculators and remains at the trading level only. This concept has no future and will inevitably collapse: something that’s going that high, that fast, is not normal. | Bitcoin is abnormal relative to the other currencies. Remember that cryptocurrencies have emerged as a response to new challenges that the old banking system can no longer cope with. The crypto market will stabilize when digital currencies actually start solving real-world’s problems and get recognized by society as a legit payment method. |
| How come money that doesn’t even exist is worth more than oil and gold? When an asset’s price increase is unrelated to its intrinsic value, we’re definitely dealing with a bubble. | Crypto is a new technology that’s evolving alongside the demand for it. Nobody really knows what bitcoin’s intrinsic value is yet: we don’t know how and where it will be used. This makes it impossible to evaluate bitcoin with the classic metrics and techniques. |
| The crypto market is not legally regulated. You can’t trust currencies that are not backed by governmental regulation. | Regulation is just a matter of time. Some countries are trying to implement some laws regarding cryptocurrencies. |
| The crypto bubble has burst before. And chances are, it will happen again. | Unlike the bubbles of the past, every time a crypto bubble pops, another appears to replace it. Plus, compared to the events of 2017-2018, now bitcoin is much more mature, so it’s a completely different scene. The cryptocurrency market is not stable as their role, prices, and regulations are not settled down. Until that point, this market will be swinging — this is a normal process of evolution. |
So, what might happen to the crypto market?
As you can see, opinions differ, and it’s hard to predict where the crypto market is going. The overall sentiment is rather positive: the market is young and still shaping, which causes volatility and uncertainty. However, it might get better when more sectors recognize the perspectives of bitcoin and its role, price, and legal regulations are settled down.
This doesn’t mean that bitcoin’s price won’t fall, though. It might, and this fall might be very rapid, painful, and probably repetitive.
The important thing now is not to get overexcited by the word “bubble”. The processes that characterize old-time bubbles are not always applicable to bitcoin due to its atypical nature. Investors need to examine more than just recent price movements. A strong return does not automatically deserve the “bubble” tag since bubbles are not about prices – they’re about price relative to value. In the case of bitcoin, its true value is yet to be revealed.
Short-term
- New investors will keep coming into the market and buying new cryptos.
- Other crypto coins will be gaining real value and become useful. That might help stabilize the overall crypto market.
- The largest names in the financial sector will enter the market, following the PayPal payment system. Back in 2017, it was mostly retail traders. Now, major universities and even pension funds have their endowments with BTC. It would be much harder for a major correction to happen now, as it happened in 2017.
Long-term
- The expansion of the investment infrastructure.
- The emergence of a larger number of institutional investors.
- Today’s 2000+ digital assets will reduce to a few hundred of those that come with human evolution through globalization. As the very first asset of the kind, bitcoin has good chances to finish up in these few hundreds.
- Bitcoin will be a candidate to take the dollar’s place. The US currency may lose its reserve currency status to cryptos since the latter is better suited to be a means of settlements and savings thanks to the use of blockchain.
Obstacles that could prevent the spread of cryptocurrencies
- New challenges related to the government regulations, including tighter regulation in the United States.
- Competition with big banks, including digital currencies of central banks. Obviously, the existing banking system will resist the threats coming from decentralized currencies because they are satisfied with the way things are.
Bottom line
There are strong points in both skeptics’ and believers’ parties.
To believe or not to believe is for each investor to decide.
Bubble or not, the beauty of trading with IQ Option is that traders may succeed regardless of the price movement. Pay close attention to technical and fundamental factors and don’t overlook the big picture. Also, mind the risks: bitcoin is extremely volatile and, so you should never invest more than you are ready to lose.
What do you think: is bitcoin a bubble or the new dollar?
