Crypto Bubble: What is it? And how true it is?
In its over 10 years in existence, Bitcoin has experienced highs and lows on the price chart, attracting the attention of financial experts and pseudo-economic scholars. With reviews from adhèrent financial authors and billionaires like Nassim Taleb, Charlie Munger, and even Warren Buffet and their consistent profanities about Bitcoin and cryptocurrency; one must begin to rethink what this new digital asset truly is — a façade or the real deal?
Over the past years, Bitcoin has outperformed stocks and good in returns over x196 and is one of the major sources of the recent increase in the number of billionaires around the world. However, its volatile nature seems to draw enemies as one can lose wealth the way it is easily gained.
The great Bitcoin fall of 2018 and the 2021 flourishing era where it achieved its all-time high seems to have created a phenomenon called Bubble. Like every investment and asset, the word bubble is thrown in from time to time from gold to oil and even stocks, however, what is a bubble, how do you classify a bubble, and is cryptocurrency truly a bubble?
A bubble in economic terms is a series of financial events often characterized by an abrupt increase in the valuation of the asset which will undoubtedly lead to a corresponding rapid decrease, leading to the demise of the asset in most cases. For an asset to be considered a bubble, the price for such an item should rise far above the item’s real value; this rising momentum would inadvertently cause a change in the investor’s behavior to sell.
Is Bitcoin truly a bubble?
An asset is considered a bubble when it cannot be easily exchanged for a corresponding amount of products or services. Although it holds value, its value cannot be used in the normal market. Bitcoin gets vindicated as it can be used as a legal tender and has even been recognized by countries as a legal tender in countries like El Salvador.
Big franchises like Microsoft, Tesla, and even Amazon are processing plans to receive Bitcoin, Ethereum, and Dogecoin in exchange for their products and services.
A bubble asset cannot be used to mitigate loss during financial crises; here again, proves to be false as cryptocurrency can be used and has always been used to minimize loss. Stablecoins, a form of cryptocurrency with little to no volatility has been used by investors and traders countlessly to mitigate loss as it is an emblem of a flat currency.
For an asset to be considered a bubble, it must have little to no adoption level and this is different for cryptocurrency as it has millions of users all over the world. The current cryptocurrency market has a total valuation of over $2 trillion and over 20 million active users using it for their day-to-day transactions.
Also, bitcoins limited supply further proves it is not a bubble. It has a fixed supply value of 21 million with almost half currently in supply and no tokens can be generated anymore. If this doesn’t prove Bitcoin is the future and not a bubble, then I don’t know what will.