Have you ever heard of the term “Bitcoin bubble”? This term is famous among critics of Bitcoin, cryptocurrencies, and blockchain technology in general. For them, Bitcoin is just a bubble, and it will pop soon enough.
Defining an Economic Bubble
The most recent bubble before cryptocurrencies rose to fame is the 2000 commodity bubble. Prices of commodities like oil and food rose and plummeted significantly. And now, people are saying that cryptocurrency is just a bubble.
But what is a bubble? Economics defines a bubble (also called asset bubble) as the extreme rise in the price of an asset beyond its intrinsic value based on unpredictable views about what is to happen.
As a result, the price of an asset would increase so high that it would plummet someday.
The Bitcoin Bubble
It all started in 2011 when the price of Bitcoin appreciated. Most importantly, it is 2011 when the exchange rate of the US dollar per Bitcoin became in parity with each other.
In the last month of the last quarter of 2017, the price of Bitcoin per USD reached a peak of $19,511 per BTC. Many saw it as a comeback from the critics of cryptocurrency.
Even John McAfee, the founder of computer security company McAfee LLC, worshipped this increase in price and used it to tell the critics of cryptocurrency to surrender.
The Beginning of the End–Or Not?
The soaring price of Bitcoin in late 2017 triggered crypto investors to sell-off. On December 22, 2017, the price suffered a 45 percent fall from peak price. The year 2018 came, and a lot of investors in cryptocurrency sold their coins.
There was this fear of banning cryptocurrency in South Korea. The hacking of Japan’s largest cryptocurrency Coincheck happened. Everyone who held cryptocurrencies for speculation suddenly decided to sell their coins.
However, the end didn’t come yet. Bitcoin lost $100 million of its capitalization, and its current price is around $6,000 to $7,100 at the time of writing.
Bitcoin to The God of Death: Not Today
The coming of 2018 became a bloodbath for Bitcoin, cryptocurrencies, and speculative assets in general. During 2018, the price of Bitcoin per US dollar played around $3,000 to $4,000. But come 2019, there have been some significant price recovery.
So, is it a bubble? Yes and no. The “bubble” status of cryptocurrencies is debatable and purely academic. With the recovery in price, the 2018 cryptocurrency crash might be a bump in the road.
To invest or not? It depends on your risk appetite. Remember, Bitcoin is volatile and purely speculative. Decide what kind of investor are you when it comes to the assumption of risks.