The numbers simply don’t lie; Bitcoin, Litecoin, and Ethereum have been on rocket skates in 2017. The price hike can’t be understated, as it has generated serious appeal amongst both experienced investors and casual traders alike. With every major price shift, more and more are jumping aboard the cryptocurrency wave. This begs the question; with all the additional funding being pumped into the cryptocurrency market – along with an ever-growing investor interest – is this creating a bubble? Are the relentless news article right to predict Bitcoin’s eventual downfall? Honestly, we think that these bubble fears are being largely overblown, as Bitcoin – in spite of its obvious volatility – doesn’t exactly present the extreme level of risk that some would have you believe.
Answering the demand
When addressing the current state of Bitcoin and any related bubble fears, you need to start by looking at why the cryptocurrency is in huge demand. For this, you can’t escape the comparisons to gold, as its similarities with the precious metal are pretty evident. Much like gold, the supply of Bitcoin is constrained, with the available supply diminishing as more coins are mined. Rarity often equals desirability and increased value, with Bitcoin hitting both of these characteristics. Take this into consideration with increased security measures, lack of governmental influence, potentially low transaction costs, and ever-increasing price targets, and you can see why the world has rushed to snatch up Bitcoin on mass.
Stepping away from the norm
In spite of all of Bitcoin’s positives – like what we’ve detailed above – we’ve still seen the word “bubble” routinely attached to it. But, it really isn’t just as simple as saying it’s a bubble and accepting that, as for starters it’s still a difficult commodity to value. Yes, the price passed the $19,000 mark just a few days ago, and there is certainly an argument this rate of growth can’t continue. However, it would be foolish to say that Bitcoin doesn’t have room to grow, because as a commodity it is only just starting to mature.
Defining the term “bubble”, it relates to an asset that deviates from its fundamentals, which impacts how investors value said asset. Often this could be the level of income that can be generated from a stock over time, business cash flow, economic state of a nation, or some other financial implication entirely. Bitcoin doesn’t work in this fashion; it doesn’t payout profits directly nor is it attached a nation’s economic performance. For this reason, the standard “bubble” argument simply can’t be applied to Bitcoin, as you have to look elsewhere to determine what the cryptocurrency’s fundamentals actually are.
Facing the fundamentals
Bitcoin’s fundamentals lie within the act of mining, which is probably where the bubble arguments come from. There is no getting away from the fact that the mining process can be costly, largely due to the required resources. The fear is that these costs will eventually eclipse the value of Bitcoin, thus making it pointless to both mine and invest in a cryptocurrency that would effectively be struggling to stay afloat. Some have also linked bubble fears to Bitcoin’s ability to control the market. Other cryptocurrencies are on the rise, with Litecoin and Ethereum showing strength, but while these cryptocurrencies have a prominent role to play, Bitcoin still commands a near 60% market share. It may have challengers to the crown, but there is no denying that Bitcoin is still the big-time name in the market.
Bitcoin still commands a near 60% market share.
Governmental policy is also a non-influencing factor, which actually means that it avoids taxation or other holds that a governing body could exert. Adding to that, this also means that it’s not heavily impacted by any shift in economic fortunes that a country may suffer from. When you begin to take away these fundamentals, you see that Bitcoin’s value is almost completely reflected through speculation. Evidence even points to the fact that the inclination to hold Bitcoin (or “hodl” if you know your insider terms) will only boost the cryptocurrency’s value, as there is a total Bitcoin cap of 21 million.
Plenty of room to grow
Here’s where the bubble fears really begin to falter, as Bitcoin still has a huge amount of room to grow. You simply need to look at those investing in Bitcoin to see that hedge funds and banks – among other key influencers – have yet to enter the fray. The lack of regulation and heightened volatility is the reason for this absence, but as futures’ trading of Bitcoin gathers pace, it’s only a matter of time before these institutional investors jump in.
It’s also worth noting that while the legitimacy of Bitcoin is cemented, it’s still not a currency that’s widely accepted in the mainstream. As the cryptocurrency market grows with Bitcoin at the helm and scalability issues being appropriately addressed, the day of mainstream acceptance has surely become a matter of when and not if. Bitcoin ATMs have even begun popping up around the world, with the emergence of new, regulated marketplaces and peer-to-peer platforms only lending additional weight to this argument.
More budding than bubble!
Bitcoin and its bubble accusations aren’t going anywhere. Especially when the likes of Jordan Belfort – the often times nonsensical and ridiculous Wolf of Wall Street – continues to erroneously label Bitcoin as a “huge scam”. Those that see beyond the misleading and clickbait-esque headlines will see that the “bitcoin bubble” claims aren’t particularly well-founded. Part of a burgeoning marketplace, threatening to break into the mainstream, and carrying plenty of room to grow, if you think Bitcoin is a bubble, it’s now time to think again.