During the last couple of months, we have often heard economic analysts state that bitcoin is likely a bubble, about to burst, thus bringing forward a huge price decrease. Yet, this never actually happened, regardless of having the digital currency express its volatility during the last few weeks, with trading volumes going below the $3,999 threshold, and then rising back again to newer all-time highs.
However, it isn’t that hard to understand why numerous investors, bankers, finance enthusiasts, and of course market analysts tend to believe bitcoin is a bubble- because they’ve never seen anything like it. Since 2009, Bitcoin has managed to become the world’s most valuable currency, with no medium of exchange worth more than bitcoin is at this moment in time. When compared to traditional, fiat-based currencies, which have only gradually modified their value with time, it is understandable why bitcoin really took the world by storm.
The last two decades have brought along a total of two bubble bursts on the financial market, with the first taking place in the 1990s, and known as the dotcom bubble, and the latter, taking place in 2008, known as the housing bubble and putting the entire world in a financial crisis. To put things better into perspective, the dotcom bubble consisted of internet companies creating websites, and hence selling products and services that people use, whereas the housing bubble consisted in actual real estate. These are therefore attributes that are not correlated in anyway whatsoever with bitcoin- after all, it has often been stated that it is a big mistake to compare the bubbles in question to actual currency. The basic principle however, is that, if the world cannot see value in an asset that is continuously increasing its price, then chances are that there’s a bubble.
Another one of the main reasons why some believe that bitcoin is only a bubble about to burst, is the fact that there are numerous uncertainties over the security of bitcoin. Many tend to believe that being hacked and left without your coins is something that happens very often, and to many people, due to the media buzz that a couple of bitcoin exchange hacks gained over the years- however, this didn’t affect that many people, after all, the coin recovered.
Apart from this aspect, traditional investors are also considering the demand and supply insecurity. While governments can always go ahead and print more money, increase salaries, or make more investments to facilitate currency growth, this isn’t the case for bitcoin, as its value is based on the supply and demand, and with the very strict supply rules implemented on the network, it’s understandable why the demand is so high.
Regardless of these aspects that can be taken into consideration by investors who do not believe in bitcoin, the digital currency has repeatedly shown that it doesn’t stick to the traditional financial guidelines that can be applied to traditional currencies, and rather has its very own set of rules, thus its success.