Is Bitcoin a Bubble?
Bitcoin is the most popular form of cryptocurrency (electronic money) in the world. You can make your life much easier by using cash to buy bitcoin, which acts as a “digital asset.” The popularity of Bitcoin is such that all other forms of cryptocurrency are commonly known as “altcoin”, which means they are bitcoin “alternatives.”
The nature of Bitcoin has been under debate for a while now. People are calling it a “bubble”, which may just be true! Take it from Robert Shiller, a Nobel Prize winner for economy, who believes something is a bubble if:
- There are sharp, unpredictable increases in the asset price
- There is consequent public excitement on price fluctuation
- There are stories of some people earning huge amounts of money, which makes others jealous
- There is tremendous hype on the media
- The general public is more interested in the asset class
- There are theories to justify the fluctuation in prices
Is Bitcoin A Bubble?
Well, if we look at it from the perspective of an expert, Bitcoin is a subtle representation of the term “bubble.” Another expert recently posted on the social media calling Bitcoin a bubble the other day saying: ‘You know it’s a bubble when a random Twitter thread bounces the price.’
Four Stages of a Bubble
- Stealth: This stage is where investors who understand the system and believe it could be a profitable investment decide to go ahead and try out the system. The steady increase in prices generally goes unnoticed
- Awareness: The second phase is when investors start noticing the opportunity and bring in more money into the system. The media also starts noticing this new boom, which has a positive effect on the economy.
- Mania: This phase is defined as the period when everyone (the general public and some industrial investors) starts to notice the increasing prices, pouncing on the opportunity they have been waiting for, bringing a huge amount of money with them. The problem is that most of these people are newbies, who are only in it because of the boom and are completely oblivious to the how the system functions. Meanwhile, the huge influx of investors is noticed by a few experts (mostly institutional investors) who are aware of how the system works, because of which they start to silently pull out and release their assets.
- Blow Off: This is the final phase, in which everyone starts to realize how prices take a nose-dive, compared to how they grew in the first place. Consequently, everyone wants to sell their assets and prices drop even further, which leads to many people losing money.
Experts believe that Bitcoin has only reached its third stage yet, since its prices are at an all-time high.
Future of Bitcoin as a Bubble
Bitcoin is certainly a bubble despite people trying to convince themselves that it isn’t. Bubbles are not necessarily bad. Railroads, microcomputers and biotech were all bubbles in their own aspects, which can inspire people to do great things so yes, bubbles aren’t all that bad. Bubbles burst, people lose money, but they grow. Bitcoin, like all other bubbles, will burst. People will lose money. But that is life and that is learning. Bitcoin will bring a change and that is what bubbles do.
Why not invest a little money in Bitcoin? I intend to do so, just for the experience and to learn how it works. Why not give it a chance, just for the sake of education.