Is Bitcoin a Bubble?

Is Bitcoin a Bubble?

Since Bitcoin's inception, but especially after its jump in popularity in 2017, there have been questions about whether it's safe to invest. Nobody wants to lose their savings because of the FOMO (Fear of Missing Out); therefore, one of the most common questions newbies ask is: is Bitcoin a bubble?

Is Bitcoin a Bubble?

According to Charles Kindleberger's life's work “Manias, Panics, and Crashes: A History of Financial Crises”, a financial bubble can be defined as “an increase in asset prices that cannot be justified by its fundamentals”.

Therefore, an economic bubble is trading an asset at a price or price range that strongly exceeds the asset's intrinsic value. In our financial history, we have many examples of a typical bubble:

  • Dutch Tulip Bulb Mania 1636 – 1637
  • Mississippi Company 1719 – 1720
  • Gold Price Bubble 1975 – 1982
  • Dotcom Bubble 1995 – 2001
  • US Real Estate Bubble 2000 – 2008

How much of a bubble is Bitcoin? This is difficult to know, as bubbles are often conclusively identified only in hindsight, as there has been a sudden drop in prices.

As of now, several things are clear: the fundamentals of Bitcoin are increasing rapidly every year as there are thousands of brilliant open source developers and contributors who are working hard to improve the Bitcoin ecosystem on a daily basis.

On the other hand, the Bitcoin it certainly sees some characteristics of a bubble, but it has also experienced several speculative boom and bust cycles (Bitcoin bubbles) in the past and still has a long way to go before it becomes a stable currency.

Cryptocurrencies are fundamentally different from traditional assets. Answering the question "Is Bitcoin in a bubble?" it's complicated because, although the Bitcoin may exhibit bubble behavior, it hasn't completely crashed yet, so we can't know for sure.

It may very well be a young asset class, destined to go through countless bubbles of prices before finally ripening.

So who wants to put their money into Bitcoin (BTC) must follow the golden rule: never invest more money than you can lose.

Be aware that Bitcoin is the first scarce digital asset of its kind, so it's still pretty much a social experiment at this stage. Be reasonable with your choices, don't FOMO and avoid getting sucked into another Bitcoin price bubble with money you can't afford to lose.

5 / 5 - (6 votes)

Related Posts