Bitcoin bubble: 5 advantages and 5 disadvantages | Via | The Capital | July 2021

One of the favorite entertainments of Bitcoin skeptics is to claim that the first cryptocurrency (although like other cryptocurrencies) is a bubble. They made some seemingly consistent arguments. When the price of Bitcoin fell, they said, “We told you!” But their claim was based on a lack of understanding of Bitcoin. In this article, we will present evidence that Bitcoin price fluctuations are not a symptom of a bubble, but the normal price dynamics of a young and promising asset.

A bubble is when an asset is bought vigorously and recklessly in an emotional state, its price rises much higher than its intrinsic value, and then people see this fact and start to sell it. We will return to this concept later.

It is claimed that the main reason for Bitcoin’s bubble today is its severe price fluctuations in 2018 and 2021. In 2017, cryptocurrencies showed an unpredictable growth of 900%, then suddenly collapsed, followed by a long-term bear market. The situation today is similar, but it is too early to talk about the length of the current bear market trend.

April 2021, Bank of America Professional Investor Survey display 74% of people think Bitcoin is a bubble. When the coins started to fall in May, their views were definitely firmer.

The arguments of the “bubble theorists” are valid, and we understand their concerns. But let us see what they are and how we can debunk them.

1. Bitcoin is not controlled by anyone

bubble. Bitcoin is not regulated by anyone, not supported by the government-unlike the fiat currencies supported by large banks and authorities. Many countries still suspect that Bitcoin is temporary, unnoticeable, and even ban it. Without the proper management and support of the state, Bitcoin can only be sustained by people’s beliefs.

Not a bubble. Developed countries have long legalized Bitcoin, and in some countries, it is already legal tender.Malta has Announce It is a “blockchain island” in itself and has enacted legislation that is friendly to cryptocurrency.Countries that restrict Bitcoin don’t understand it, are afraid of it or want to control the market and citizens, just like it happened in China.

However, this is not the point. Initially, Bitcoin was created as an opposition to the world financial system. In the world financial system, the central bank can print money and push up inflation at will, and the money that citizens deposit in the bank does not really belong to them. The fact that Bitcoin is written in computer code and its behavior is highly predictable is its advantage. In addition, there is a decentralized developer community who has been successfully developing Bitcoin since 2009.

2. Manual pump

bubble. Since Bitcoin is not supported by anyone, it is artificially promoted by those who profit from its price growth. Eventually, this will end and the bubble will burst.

Not a bubble. This is what is really prone to skyrocketing-tokens with no use cases have carried out shining activities and have not shown any signs of evolution since then. These are real bubbles. Take Bitcoin as an example. Thousands of people influence its price. Even if someone wants to artificially smoke it, they will not succeed because of lack of resources. This is how decentralization works.

3. The hype attracts new market participants who further expand the bubble

bubble. Continuing the previous argument-when the hype occurs, more and more people feel FOMO and join the craze, thereby further expanding the bubble. This is what happened in 2013, 2017, and between 2020 and 2021. After record market activity, the price fell from US$20,000 in 2017 to US$3,200, and in 2021, it fell from US$64,800 to US$29,000. These figures show that Bitcoin is nothing but a bubble.

Not a bubble. People join the craze because they see investment opportunities, strong buyer pressure triggers price increases, but the market adjusts itself: when the price reaches a certain point, sellers join the game and start to make a profit. When the market is overhyped and overheated, growth may continue, but the subsequent correction will be deeper. We have never seen Bitcoin go to zero completely.

4. Bitcoin has no value

bubble. This is a favorite of Bitcoin skeptics: coins have no real value. It is just a computer code without any support, and its price comes from nothing.

Not a bubble. Remember the definition at the beginning of the article? A bubble is when the price of an asset is much higher than its actual value. But no one knows what this value is. When skeptics claim that they know Bitcoin is a bubble, they are saying that they know its value, which cannot be true. The technology is still very young, and traditional indicators are hardly suitable for evaluating it, and its potential has not yet been released.

5. Bitcoin is not used outside the crypto world

bubble. So far, few companies have used Bitcoin because it is complicated and slow.

Not a bubble. This fact is hard to argue: Bitcoin adoption is not fast. As a payment method, it is really inconvenient-but there are many options.Available in Tokyo Almost everything Use Bitcoin Cash. But the key value of Bitcoin is not that you can use it to pay: Bitcoin is scarce and anti-inflation, and many people invest in it as a hedge against inflation and long-term value preservation.

For 12 years, Bitcoin has been growing up and down. When it costs $20, skeptics tell us not to invest. For 200 dollars, they made the same proposal. But how is the situation different today? Even more institutional investors have created their Bitcoin reserves. Bubble refers to growth that can be explained entirely by hype. Anyone can make a mistake, but if Bitcoin is a bubble, will there be so many companies investing? The idea of ​​bubble theorists is biased: they only consider the worst case and ignore other cases.

Let us look at the Internet bubble. By 2001, a number of trendy Internet companies emerged, and their stock prices appreciated rapidly. After the glamour disappeared, it turned out that many market participants were just hyping the technology itself and did not provide any real value. The market collapsed and many people went bankrupt, but then stable and mature growth began. In this sense, many crypto projects and some bitcoins are bubbles-yes, sometimes prices fall sharply. But after every such decline so far, we have only seen greater growth, not disappointment.

Of course, Bitcoin skeptics will find their arguments for each of our rebuttals. In any case, there are some things that are hard to argue about:

  • The price of Bitcoin has risen because people see it as a revolutionary financial tool. And it is not an asset that can be easily drawn voluntarily.
  • The price of Bitcoin has risen because more and more people are using it and investing in it. The network effect is getting bigger and bigger.
  • The fact that Bitcoin is not supported and controlled by the government makes it predictable and anti-inflationary.

Investing carefully is a good thing. Investment is a balance of caution and risk. For bubble theorists, there is only risk. Don’t seek advice from people who don’t understand Bitcoin or who only see the worst. Do your own research and draw your own conclusions.


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