The Bitcoin bubble: Will the cryptocurrency craze continue?

By: December 29, 2017
bitcoin bubble

The Bitcoin bubble is arguably the most fascinating financial moment in the 21st century. Some investors argue that it’s impossible to label Bitcoin a ‘bubble’ as it is still virtually impossible to predict the value of such cryptocurrencies. Bitcoin doesn’t dish out dividends to shareholders or rent to property landlords; nor is it linked to any state economy. This has made it very difficult to determine its underlying value and whether cryptocurrencies really are fit for purpose in the modern era.

Bitcoin is the fastest-growing asset on the planet in 2017, rising up to 900% since the turn of the New Year. The value of a single Bitcoin even hit the $20,000 mark this month, before falling to rest at around $18,500.

While those in traditional finance are becoming nervous about a potential crash in the value of Bitcoin, with the threat of a sell-off rush potentially occurring at any moment, those who really believe vehemently in the concept of cryptocurrencies are loyally clinging on. The real beauty of cryptocurrencies, in general, is that they aren’t pegged to any central bank. There is no risk of internal politics influencing its value. It gives consumers the ability to bypass high-street banks and traditional ways of paying for goods and services such as a cup of coffee, a cream cheese bagel or even Bitcoin Lotto tickets for a chance to win up to 1,000 Bitcoins in the world’s first ever cryptocurrency lottery.

However, as Bitcoin continues to break new ground in terms of its value, economists believe a bubble is forming as it becomes viewed more like a store of value and anything but a digital currency. The danger is that speculators meddle with the exchanges and attempt to push its value as high as possible without a fear of the bubble bursting. Some traditional finance experts have likened the Bitcoin boom to that of the tulip saga in the 1600s and even the dotcom bubble which kick-started in the late 1990s and burst at the turn of the Millennium. Bitcoin certainly fits the profile of a bubble asset, trading at up to six times its average share price since 2013.

Nevertheless, there are genuine reasons why those who are currently in receipt of Bitcoin should hold onto it for a little while longer. The Bitcoin market has largely been infested with retail investors and digital ‘nerds’ so far, but large-scale investors are beginning to take note. The world’s largest futures exchange, the Chicago Mercantile Exchange (CME) launched bitcoin futures earlier this month, allowing investors to trade the future value of the cryptocurrency; thus enticing big-playing hedge funds into the market. Furthermore, cryptocurrency experts have rightly noted that tech share prices prior to the dotcom crash reached highs of $2.9 trillion. With the current bitcoin market cap at a reported $170bn, it’s quite possible that investors have by no means found the ceiling just yet.

What makes the so-called Bitcoin bubble even more unique is that many believe there are no legitimate reasons to force it to burst. Its market is nowhere near big enough to threaten the global economy and the next generation of investors are viewing digital currencies as a safer asset investment than gold in case of a threat to human civilization as we know it.