The term “cryptocurrency bubble” refers to a situation where the market increasingly considers prices of cryptocurrencies to be inflated against their theoretical values. This happens because there are many investors who believe that the future price of Bitcoin and other currencies will increase dramatically.
In recent months, the price of Bitcoin has increased by over 500% since January 2018. In December 2017, one bitcoin cost $6,400; by February 2018 it had reached $20,000. By November 2018, the price of a single coin was reaching $40,000.
This rise in price has attracted a lot of attention, and many people are investing in cryptocurrencies. However, some observers have warned that the current surge in popularity could lead to a collapse. They warn that the price of coins might fall sharply once the hype dies down, causing losses for those who invested heavily during the period of growth.
Some skeptics have expressed the view that the entire cryptocurrency market consists of a speculative bubble. These critics argue that the rapid expansion of the industry has led to a massive increase in demand for digital currency without an equivalent increase in supply. As such, the system is vulnerable to manipulation by speculators looking to make profits from short-term fluctuations in the price of cryptocurrencies.
Adherents of this view have included Berkshire Hathaway board members Warren Buffet and Charlie Munger, and Bill Gates, former chairman of Microsoft.
Is Bitcoin a bubble?
Bitcoin is one of the most popular cryptocurrencies today. However, it has been criticized because it is extremely volatile and there are no clear regulations surrounding it. There are many people who believe that Bitcoin is a bubble. In fact, some experts even say that it is already bursting. So, what do you think about this cryptocurrency? Let us know in the comments section below.
The term “bubble” is used to describe something that is very popular at first but then becomes less so as time goes on. For example, when the internet became more widespread, it was considered a big deal. But now, it seems like everyone knows how to use the internet.
Bubbles can also refer to financial assets that are highly valued compared with their actual worth. When these bubbles burst, they cause huge losses.
A bubble can occur in any type of asset or investment. It can happen with stocks, bonds, real estate, commodities, art, collectibles, and just about anything else. A common characteristic of all types of bubbles is that they start out small and grow quickly. If you invest in a stock or bond that is going up rapidly, you may not realize that you are buying into a bubble until it bursts.
A bubble can also form if a company or government issues too much money. This causes inflation, which means that the value of money decreases. If you buy goods or services using dollars, your purchasing power will decrease.
The growing Bitcoin bubble – is it worth the risk?
Just a year ago, Bitcoin traded up 40%, while other cryptocurrencies experienced price surges of up to 18,000. But are we looking at a golden opportunity, or a bubble in imminent danger of collapsing?
It would be easy to wonder if the world has lost its mind when you enter a Bitcoin mining plant as big as an IKEA, stacked high with glowing computers roaring loud like a jet plane, pumping out heat, pumping out power. One of these giant sheds can house over 20,000 mining rigs – each of which is much more powerful than a laptop – and one factory alone consumes more electricity than all of Iceland’s homes combined. A combined amount of electricity is used by Bitcoin more than by the Netherlands or Argentina, and that’s before you factor in the hundreds (in fact, thousands) of other cryptocurrencies.
The basic concept behind cryptocurrency is simpler than people might think. It’s the same as buying gold . Gold has long been used as money because it is rare, and it is difficult to fake. Because of this, it makes a reliable token of value. The same is true of crypto-coins: they are ‘mined’ by solving complex sums that can only be solved by vast computers. As a result, everyone knows that your coin is genuine when you own it. It would be futile to fake such a coin because it would cost as much as the real thing (in fact, it would be real).
People are not just using crypto as regular money, but also as investments. That is the problem with cryptocurrency as usable money. In the early days, Bitcoins would surge in value by hundreds of percentage points in just a few months, followed by similarly sharp declines. As a result of the pandemic, the price soared over 200% over the course of 2020, reaching a record high. The return on some more junior cryptocurrencies, such as Ethereum and Dogecoin, is as high as 18,000 percent.
Because of these astonishing growth figures, many people have become Bitcoin believers (there’s even a name for them – Bitcoiners – with ‘Nocoiners’ being the disparaging term for those who don’t believe in the hype). An investment that multiplies your money exponentially is what everyone wants, right? The problem is, investments don’t do that. Bubbles do.
One of the worst kept secrets of cryptocurrency is that it is just a bubble. The money fueling the massive price rises comes solely from other investors. Such a phenomenon – where investors’ money alone generates the returns – is known as a Ponzi scheme. Cryptocurrency investments may be voluntary versions of them, but otherwise the description fits very well.
Bitcoin is a speculative asset with no intrinsic value. Buy it only if you are prepared to lose all your money, said the Bank of England governor.
The high cost of gambling on cryptocurrencies
Craig E of Lincolnshire bought SafeMoon in 2017 for £2,500 ($3,200), believing he could make money out of the volatile digital currency. He invested about £5,000 ($6,800).
However, despite some slightly different rules intended for rewarding those who hold onto the coin for longer, SafeMoon isn’t really much different from any other crypto. Its current low price – just 0.00000126 BTC – may tempt many investors to think it’s a low-cost investment.
Buying something that costs far lower than a single penny might sound like a great idea. After all, you’re paying nothing for it. But there are actually quite a few downsides to buying something that cheap.
For example, one person who bought $1 worth of Litecoin in 2011 says his investment now amounts to around $4,000. Another investor says he lost almost half of his initial investment when the price fell dramatically.
And while the UK government has taken steps to help protect consumers, the same cannot be said for the US Securities and Exchange Commission. In fact, the SEC recently ruled that cryptocurrencies aren’t securities, meaning anyone can invest in them without having to comply with the same regulations as traditional financial markets.