Is Bitcoin in a financial bubble?
Market bubbles are as old as the History of Humanity. We already find specific indications in ancient Rome of a possible mighty real estate bubble caused by the great fire that devastated the imperial Rome of Nero. Currently, critical financial bubbles are detected. We will specifically address the bubble of cryptocurrencies, especially Bitcoin. It should be noted that there are already more than 800 cryptocurrencies and that there are some even better technically than Bitcoin.
We must also specify already referring to Bitcoin that we must distinguish three aspects of the cryptocurrency: a) Its function as a means of payment b) Its possible role as a currency c) Its consideration as an investment. Well, as a means of payment Bitcoin and other cryptocurrencies are even better than fiat money. We refer to the aspects relating to costs, security and independence; but it is also true that it is impossible to disseminate it as an official currency or because it is challenging to track and monitor it at tax levels. As a currency, Bitcoin cannot be viable at this time due to its extraordinary volatility. Finally, as an investment, it is clearly a financial bubble.
To consider that Bitcoin is a market bubble, it is enough to see the graph of the evolution of Bitcoin, as well as its comparison with other famous charts of price evolution such as that of tulips in the seventeenth century.
How can we be sure that Bitcoin is a market bubble?
– Firstly, because the use of bitcoin in the non-speculative economy, the real Economy of Investment and Financing, is practically nil, as was the case with tulips whose use value was almost nil.
– Second, for the speed of the rise, even assuming it is a good value. It is very suspicious, no matter how good the investment, that we see that it multiplies its worth ten times in less than a year, especially in the absence of real changes in the financial uses that could justify it.
– A third argument, which derives from the high percentage of “investors” who are buying the bitcoin without having the remotest idea of what bitcoin is, not even a concrete idea of what it is for and, of course, without having ever used it. Do you remember the .com bubble? The same thing happened.
To what value will the speculative bubble of bitcoin endure?
Its proponents claim that it is only a natural correction after the high growth rates of cryptocurrencies. They also believe that, in a digital world, the value of virtual currencies will grow like foam and that we are currently in the beginning stage. Its price is a reflection of its level of acceptance, which has already passed the threshold of financial maturity.
However, not everything that glitters is gold. Because it is still very enigmatic to try to guess the behaviour of bitcoins with a specific regulation to prevent the laundering of capital or activities that approach cybercrime in the field of international payment systems. Unfortunately, it is impossible to predict when a market bubble will explode, so the advice to take this time is “If you have invested in a bubble, be ready to jump. If you do not dare to jump, do not enter in the first place.”