Is Cryptocurrency a Bubble?

July 17, 2019

According to the economists, cryptocurrency is the mother of all bubbles. Though the skyrocketing prices in the bygone years and many experts pinpointing cryptocurrency as a bubble, it doesn't necessarily mean that it is.

In economics, a bubble is when the cost of an asset is more than its intrinsic worth. Usually, prices are gone up in a bubble when people show extremely positive attitude towards an asset. When the bubbles burst eventually, people are left with nothing when they haven’t made a sale of the asset in the expectation of hike in prices.

This pattern complements cryptocurrency.For instance- in the last year, the prices of bitcoin were grown by 900 % and its hike in value is even yet not predictable.

What do people think about cryptocurrencies?

There has always been the division of opinions among the people when it comes to cryptocurrencies. But with the new marketstream, public opinion is shifting to a more positive side. Most of the people believe that this is the global currency and becoming mainstream nowadays with clear chances of going higher than now.

What is really happening around?

Many market observers are of the view that cryptocurrencies are depicting behavior than can be linked to a bubble. This is especially true for bitcoin as it does not have a regulator and is not controlled by central bank. On the other side, Ether has the utility of real world, yet it's still in its early stages. Moreover, the supply of bitcoin is limited and on the other side, ether is infinite.

Though it is right that experts believe that we are in a cryptocurrency bubble, there is a scope for correction in the coming period.

It is difficult to identify the bubbles in advance

Bubbles can only be spotted as and when they are popped. It is difficult to spot them until this point. As an example,a number of analysts in the year 2012, were of the view that Apple shares were bubbled since they had reached the 100$ per share mark. It has been more than 6 years now and no pop-up had taken place yet.

Determining the value of cryptocurrency is not easy

Though many people are not selling out their cryptocurrency and keeping it as a stock, it is arduous to determine its underlying value. Since currency is in its name, it actually does not work like a currency as it cannot be compared to its valuations. Cryptocurrencies are grossing simply because they are comparatively new in the market. Similar to the launch of new technology, cryptocurrency is embraced with skepticism.

What is making cryptocurrency more complicated is that the market is flooded with many cryptocurrencies. From one perspective, the Ethereum and Bitcoin values are not really the bubbles but in cryptocurrencies, the bubble is acknowledged by the rising number of new cryptocurrencies in the market. And each one of those new ones are striving to attract as many buyers as they can. If we take this into consideration, then surely cryptocurrency can be called as a bubble. Giant companies like Amazon do not signify bubble but some like Pets.com most certainly do.

Concluding Lines:

If we take it in a general perspective, itis unpredictable to say whether cryptocurrency is a bubble or not. May be it can be specified in the coming decades! One should be careful with his behavior when dealing in cryptocurrencies. Evaluate your return on investment and how much risk you are willing to take, and go ahead according to it.

Even as cryptocurrency prices have plunged, several big tech companies are working on their own digital tokens for use in text messaging systems

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Written by Zamask

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