Why bitcoin is not a bubble ?
Currently, Bitcoin’s valuation is bubblier than the hot cup of coffee you take in the morning. The global economists claim it isn’t like any other bubble in the past. In absolute terms, in a fraction of time, it destroyed even the biggest bubble in recent history, the year 2000 dot-com bubble, by increasing over twice its value. That’s what market scholars have been stressing and freaking out over an impending peril of financial doomsday. But the young investors continue to see only real coffee and no bubbles at all.
Increasingly people are pumping their money into bitcoin to make even more money, more than as an instrument to buy and sell commodities and goods. This is much like making investments in appreciating asset classes like real estate or gold or bonds on the other hand. For the value of Bitcoin, where even sky doesn’t appear to be the limit, it has become the modern investment asset class for generation
To honestly know if this cryptocurrency is even a bubble – let’s examine some of the essential benefits of bitcoin over traditional fiat currencies. So what are the advantages of bitcoin?
First, it is a smarter kind of money that doesn’t need cost and time in managing it by government or banks and individuals and be used to purchase and sell goods. Second, the time taken to purchase or sell bitcoin or trade it for fiat currency is just a few seconds being a one-world-one-currency, unlike cash. Basically because you can do so from any of cryptocurrency exchanges anywhere in the world.
Third, improved security of private information in conducting transactions than fiat currencies since it is based on the blockchain technology. This also renders entirely ineffective the control of any central authority like banks or governments.
The fourth of the advantages of bitcoin is low to no-charges for making payments unlike using conducting transactions using cards. Hence, there is an incredible increase in the demand of bitcoin. But there are only limited bitcoins that have been mined so far. So far, a reported 16.5 million bitcoins have already been mined, and the cap on bitcoin mining, as per global protocol, is limited to 21 million BTC.
Principal, Blume Ventures, Arpit Agarwal said: “I don’t think the increase in bitcoin value is a bubble. The price of an asset will go up if it has a strong demand. It is an uncomplicated demand and supply mathematics. The interest of Indian users in bitcoin shows what’s happening all over the world.”
The early-stage fund financed Unocoin, an Indian bitcoin exchange with $1.5 million in last year September. The answer to the question, ‘Is bitcoin real money?’ arises from the strong underlying idea of disruption of conventional fiat currencies in future.
The main question, however, is How much money is in bitcoin? Still, there is not yet a clear answer to how much would be gained if you have been an early investor in cryptocurrency compared to those who join the party late.
“Practically bitcoin may not substitute fiat currencies in aspects where using cash is simpler than bitcoin, for instance, local street merchants. But it is not difficult to envision that in next 20 years, a bulk of whatever transaction we do, will be based on the blockchain,” Agarwal added.
Mini Bubble Bursts
If at all its a bubble, then if we check the history of the increase in bitcoin’s value, there have been many mini bursts in its value after bitcoin transactions began in 2008-09. One of the famous bursts was first when its value dropped to $2 from $31 per coin in December 2011. Second burst was when the price fell from $1,242 to $600 per coin in December 2013. It almost crashed to just $300 per coin in March. Its real peak began in January 2017 from $800 going all the way up to $5000 – the highest it reached in September 2017 before it again plunged by almost half to $2900 some weeks later.
This was as a result of China’s crackdown initial coin offerings and cryptocurrency exchanges. However, it again jumped back in the next month to a then all-time high figure of $5,856 on the 13th of October.
However, the volatility in price will finally stabilize. “It is pretty new to many speculations, but the rate at which it was volatile three years back is higher than the rate at which it is volatile right now. But we are years away from price stabilization, it will take more than five years,” he added.
Also, the Indian government has been pondering on creating a policy framework to guarantee that bitcoins are not used for black market or illegal activities and dark trades. The bitcoin bubble is nothing near decisive as the world is still split over tech or start-up bubble or has it been a state of a market correction.
Nevertheless, since blockchain-based digital currencies and bitcoin notably will transform the way we conduct transactions online, it would be difficult to tag it as a bubble. That’s because bitcoin would still be around in future even if its value plunges. So bitcoin would still survive unlike in past bubbles where nothing of value was remaining after the burst. But if it doesn’t survive, it might turn out to be the biggest financial catastrophes in the history of mankind, given that its growth essentially based on speculations and crowd reasoning to invest for high profits instead of understanding it.
After all, the original symptoms do point towards a significant degree of hollowness in its value in such a short period.