Cryptocurrencies are not in a Bubble, and here's why:
If you have turned on any financial news channels over the last few weeks you have likely heard some talking head referring to Bitcoin and the rest of the altcoin market as one giant bubble, ready to burst.
However, upon doing some critical thinking and a bit of research I find that likely not to be the case.
In order to decide whether there really is a bubble or not, we must first establish what a bubble is.
Investopedia defines an economic bubble as this:
"A bubble is an economic cycle characterized by a rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices that is unwarranted by the fundamentals of the asset and is 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."
Now that we have a definition, why do I think that Bitcoin etc. doesn't fit this definition, at least not yet?
One reason is basically the same reason that you and I are even talking about it right now. When bubbles are truly in their blow-off top phase, hardly anyone actually thinks it's a bubble.
In fact, it is usually quite the opposite.
That is the reason it bursts in the first place.
At the peak of price cycles you have everyone on the same side. All the bears have been converted to bulls and have bought in hoping for the ride to keep going.
When there is no one left to buy, that is when the music stops and the bubble bursts. Leaving many hurt investors along the way.
This chart shows the price cycle of bubbles fairly clearly:
Looking at the above chart, I would argue that we are somewhere on the far left, possibly the "take off" phase, right at the beginnings of when institutional money is starting to get involved.
As long as there is plenty of skepticism out there I would tend to argue that we are not close to bubble bursting territory.
The 2nd reason that I don't think we are in a bubble...
Unlike some other assets that are driven up exuberantly, Bitcoin and other cryptocurrencies actually have utility value.
They are a means of transaction. They can facilitate international transactions in a fraction of the time and at a fraction of the cost. There is real value in that.
Plus it can't be manipulated in the way that current means of transaction can (dollars). The supply is known, there is no trickery going on with central banks adjusting the money supply. Which means it has a very real chance of supplanting those means at some point.
Not to mention each cryptocurrency has a network behind it. Steem is the perfect example of this. There are literally thousands of users on steemit.com every day that interact and communicate on it. Each person could literally bring in an exponential number of new people to cryptocurrency at any time.
If the base is growing, it's price likely is growing as well.
The 3rd reason I don't think we are in a bubble...
How many people do you know outside of steemit that actually own any cryptocurrencies?
For me personally, I can't name one person that I know that even owns a single Bitcoin. Not one. Keep in mind that I have worked in the Finance sector for several years and still talk to many investor and trader types and not a single one of them owns any cryptocurrency.
When Grandma and Grandpa start calling me up and asking me when the shiny new bitcoins they bought will arrive in the mail that is when I will start getting fearful of a market collapse.
Conclusions:
These are just a few of the reasons I don't think we are in a bubble, there are probably a few others that I am missing but in my opinion these are some of the biggest indicators telling me there is plenty of runway.
The next time someone tells you we are in Bubble, show them this chart:
Then think of how many people there are in the world (7.5 billion) vs. how many of those actually own a cryptocurrency of any kind. Think of how many hedge funds own cryptocurrencies. How many investment funds, how many insurance corporations etc etc...
Basically none of them have gotten involved in any meaningful way yet.
We haven't even scratched the surface of what could be coming if these things reach their full potential...
That's what gets me really excited.
Keep the dreams alive my friends!
Sources:
http://www.investopedia.com/terms/b/bubble.asp
http://charleshughsmith.blogspot.co.uk/2017/06/projecting-price-of-bitcoin.html
Image Sources:
https://www.reddit.com/r/mildlyinfuriating/comments/38ybe5/this_gif_of_a_bubble_bursting/
https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubble.html
http://charleshughsmith.blogspot.co.uk/2017/06/projecting-price-of-bitcoin.html
Follow me: @jrcornel
Your last graphic hit home. The crypto markets are a cycle - hopping from bubble to bubble.
I disagree with using the utility of a product being any indicator that there is no bubble. I also think with the state of the ICOs and the like, there are plenty of uneducated investors entering the markets to call it a bubble.
While crypto may very well be extremely undervalued, it can still be in a Local Bubble. There are very few people in this space right now - on the order of a few million. Of those there are probably only a few thousand who could articulate the merits of their blockchain investment.
Looking locally - I would say that a lot of crypto is in a Local Bubble this summer. There is way too much money pouring into the space for it not to be. Even if long term this is not a bubble.
Check out more of this viewpoint in: What it is like riding Bitcoin bubbles: an adventure through the present cryptocurrency explosion
Yep. I was just talking about this with another person in the comment thread. There are smaller booms and busts along the way. It is all relative and really just depends on the time frame that you are looking at.
I really liked his graphic here:
On a side note, you do make a good point about not all of the crypto space being created equally. There are certainly bubbles within the space. I think I am referring more to the top handful of names within the space, as well as steem of course because I think it will eventually be a part of that group.
Agreed.
USD is also a bubble
Okay well everything is a bubble
Fast acting correction phases happen. Not crashes or bubbles.
The thing we need to realize, is that this is no longer, traditional style trading. It is SOMETHING else. In order to understand the outcomes, you MUST understand the process. If you pay attention the less likely to succeed coins have a harder time correcting themselves due to lack of SUPPORT. While the stronger SUPPORTED coins suffer the same PULLBACK, the correction is much faster. In essence, the weaker coins are what holds the market back. Reason being, the values within the Market respect each other, as well as TRENDLINES. Ultimately we are investing for the future of the world and this "New Era in Investing to suit your lifestyle Modestly". In this market there is NO tolerance for greed or Prejudice. We get what we give. Love, Support, Guidance, Self Worth and SOOOO much more. When you support and surround yourself wit GREAT individuals, everything else happens ORGANICALLY.
1 By 1.
Yes, bubbles may come. It will come. But this is not what matters...
Honestly, I do not even care, how many bubbles we will see between today and say 2030. The only thing that matters ( to me) - is WHERE it will be in 2030.
Bubble bursts are great oportunity for late-commers to get in. Cryptos will never go away on planet EARTH
Totally agree on that one.
yes that's exactly what I tell myself & my friends to wait till it gets a huge drop even if you're looking at it now on an uptrend and it's around $2.5k and it goes up 4k and then it gets it's huge drop @ 2.8k then i get in @ 2.8k at least I save myself some heart ache getting in at the dip... lol... learned my lesson during the dotcom bubble... Our journey
Great points. There will be many booms and busts along the way, but the lows will higher and so will the highs. As it continues to trend upwards. I really like that last price chart. :)
Hahaahaha smartest/funniest thing I've ever read about the cryptobubble.
I believe that Bitcoin will collapse eventually. Why I think that is the limitation Bitcoin has. On the other hand, Ethereum has a much broader platform which developers can extend their ideas much more easily. Of course, this is just speculations with some rational thinking.
Ether is designed to be fuel for the Dapp ecosystem. It is not a currency. It was never designed to be a currency, and future development will not be focused on it being a currency. It's great in the mid-term because it has great prospects and provides a stable place to store value. However, over the long term, people looking for a currency for exchanging will look to use a more appropriate "currency".
I think the "currency" they choose will be based on the type of transaction. Bitcoin is great for large transfers, but it's slow and expensive to transfer. This is where currencies like Dash and others really stand to shine.
Yea plus all the wallstreet type money that is starting to back it... Ethereum is coming for Bitcoin that is for sure.
ether coin will be the winner
Man this could really happen. 10 Ether for one bitcoin sounds really strange. I would really love to get my 100 ETH back I sold for 3.8 BTC in march.
Nice approach
I'm not sure I agree. The infrastructure surrounding the bitcoin is getting stronger and stronger. We all know that platinum is more valuable than gold, but gold remains the preferred precious metal to the masses. That is, it will be the digital currency of the masses, while ETH will be the currency of complex business. The question is, will Ethereum be able to handle the IOT demands. I've been buying up domain names on the Ethereum platform, and the performance has been sluggish, if not downright frustrating. Bitcoin works now. ETH is still a promise. I guess we'll see. If we don't see some quality, live applications of Ethereum by Xmas, we could see it face a dot.com correction. If they get things rolling by then, it has a very good chance of maintaining through the inevitable correction, then skyrocketing in March.
Thoughts?
I think that Bitcoin will always maintain a mythical status as the pioneer coin that arrived along with the blockchain and legend of Satoshi. I believe that this emotional connection people feel with this creation story will result in a dedicated crypto-community that will keep Bitcoin at the core. Other coins will continue to populate the ecosystem around Bitcoin and some may gain broader acceptance, greater utility, or even possibly higher monetary value, but Bitcoin will always be the Sun in this Crypto-Universe.
Well said!!!
Following and voted, my friend!
Thanks, following you now as well. What an exciting time to be alive and so happy to have something positive to put energy into for real change in this world instead of just complaining about broken centralized powers.
Amen!!!!
Not saying that crypto is a bubble (I actually think the opposite), but in many ways, it's is the perfect "bubble". The more its price rises, the more incentives people have to build on top of it, which then adds value, causing the price to rise. For those who have read any Soros, its the perfect reflexive asset.
Great point. The price rise almost helps build it's fundamental value in a way.
BTW, I've have seen that typical "bubble curve" so many times. And one thing does not leave my mind: it is all so much relative.
I can easy speculate that named as "despair" phase is just a small "bear trap" dent in a much MUCH bigger cycle. Like this:
Yes, prices tend to move like this in many different time frames, it all just depends on what time frame you are looking at. Thanks for sharing that. It's a neat chart!
ha ha...i mastered this chart myself in a few minutes, from the same widely seen prototype. :)
I think bitcoin it's not in a bubble...but of course the fluctuation are huge, there are a lot of crypto i think is bubbling now like ethereum. By the way im starting to follow you and upvoting you
Ethereum has a lot of institutional money backing it compared to the others. It might just be at a different stage in the price cycle.
It's complicate to explain but i feel there are something dark beyond ethereum
I've been reading and reviewing many places that I could buy my first bit of cryptocurrency, figured I would go on and try coinbase and also get some etherium....I see your post saying something dark about it, maybe complicated to explain, but then where would you start? I'm talking just a couple of hundred to try and at least start. Figured one etherium.
Everything seems to be going for it, what few things do you see that looks bad?
I write the same in another post
There are something dark in ethereum project, different to other types of twins crypto like golem gnosis and augur, the concept beyond ethereum its shadow. I don't see a concrete utility from a smart contract, andI I don't think one Dapps (a decentralized app) can do the difference from App. Ok bitcoin, the revolution about crypto si the anonymous and concretely we DONT KNOW WHO IS SATOSHI NAKAMOTO, and I think is better, because we trust in an algorithm, in an automatic system, we trust (sorry for this metaphor) We trust in math. In ethereum we know, name, surname address of this gentleman working in this company and it's possible for the foundation to shift the algorithm. For example, we know will shift from PoW to PoS, is not Defective money, is inflation. If Vitalik one day waking up think to increase the base of ethereum supply he can. It's good to speculate on ethereum but please I wouldn't listen is Bitcoin 2.0, it's better to other crypto or other bullshit. Maybe I'm wrong, maybe I'm not, but identical to the people back on ethereum and Sirs i prefer believe in Math than people.
Well you sent me down a rabbit hole!
First I have to say again I'm new to this. I've been reading what blockchain is trying to see where and how people even buy crypto, what's mining, what is steem and how it works, I've been reading every chance I get! But you posted about PoW vs PoS soooooo back down the rabbit hole I went, started of reading about PoS vs PoW, which now I understand what you meant, then to distributed consensus to hard fork, PoS virtual Mining.... it's just so much to learn. Thanks for helping and well ... back down the rabbit hole. Lots to learn!!!
ether coin will be the leading crypto
I agree with you.
A lot of really good points. I keep on seeing "Crypto Bubble" news everyday on facebook and I think it is just a ploy to cause prices to dip before investors start hammering away at it with their money.
Resteemed and Followed!
I keep seeing the same as well. Thank you for the follow!
The more people say and think this is a bubble, the less likely it is one. The teltale sign of a bubble is people not seeing it until afterward. :D
You are probably onto something here.
Bingo. They will call it a bubble all the way up, then they will change their tune and hop on... saying this really is revolutionary technology. At that point we are getting close to toppling over.
Pretty much, once people stop thinking it's a bubble, then a bubble might really form. I think these are exciting times. Should be a fun few years.
That is what I am thinking as well. I can't wait for the first big dip in Bitcoin. I need to pick up a couple long term holds but I want them for cheaper than this price.
I hope you are right :-) Exciting times indeed.
Me too :)