Understanding the Hype: Bitcoin Bubble
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Volatility has been bitcoin’s constant companion ever since it’s inception, and skeptics and critics alike will always make it a point to remind you of this. In fact, the new hot buzzword is the bitcoin bubble.
Bitcoin is booming and there are many people out there just waiting for it to bust.
Bitcoin has been performing very well this year.
In fact, it’s up nearly 400% in the past year.
Even despite a few corrections the past few months, bitcoin has well out performed more well-known investment avenues like the S&P 500.
This has led to a few big name investors to speak up and prove that Bitcoin is still misunderstood and underestimated by the mainstream media and is still an unknown to the majority of people at this point.
We’ve got people like Jim Cramer who is crediting the future price of bitcoin hitting the golden $1million mark purely because he thinks European banks will need to buy a lot of bitcoin to prepare for future cyberattackers demanding payments in BTC. Not only are the European bitcoin exchange markets ranked 5th in terms of trading volume, but furthermore, the biggest ransomware attack EVER gained a whopping $100,000. So to attribute the future million dollar BTC price on this misguided assumption is proof enough that bitcoin and cryptocurrency is not well-known to this guy.
And when Mark Cuban is saying Bitcoin is in a bubble because “everyone” is saying how easy it is to make money if you buy bitcoin, he’s also mistaken.
Go to your local gas station or grocery store and ask the clerk or fellow customer if they own any bitcoin. Go ahead and ask everyone you come in contact with during the day. The fact is that not everyone has even heard of bitcoin, let alone taken the time to look into it, and even fewer still have taken the time to figure out how the heck to buy it. If you want to decide for yourself if we are experiencing a bitcoin bubble, it’ll help to understand what a market bubble is.
Investopedia defines a bubble as “an economic cycle characterized by rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate.”
Basically you know it’s a bubble when the vast majority of people are investing in an asset just because everyone else is investing in it. This causes the price to quickly rise well above what it’s valuation should be. The bubble pops when there are no more unsuspecting, uneducated investors to buy into the hype and panic selling kicks in.
The main reason why I don’t believe bitcoin is currently in a bubble is because the pool of potential investors is international.
Can you wrap your head around the millions of people who have yet to buy into bitcoin or cryptocurrency in general and what that will do to the price of bitcoin?Don’t get me wrong, I’m sure there will be more price corrections in the future but I believe the price of bitcoin will continue to rise.
Skeptics love to call this a bitcoin bubble. Now I’m not here to tell you what to invest in and when, but I feel the need to clarify what a bubble is so that you can have some knowledge on this subject and come to your own conclusions.