The quick and fast increase in the worth of cryptocurrency during the last few years, especially during the end months of the years 2017 and 2018 is referenced as the 'bubble formation' era. It has witnessed some of the most profitable and beneficial price movements. One of the biggest and the most popular cryptocurrency, Bitcoin, shined through the bear market where it was stuck since the previous crypto bubble burst. “Bear market” is a term used for seller-dominant market.
Since these events happened, bitcoin has done bits by providing amazing results and bringing big gains to its users. Such growth has urged the people on speaking up from all aspects, traditional finance, and the crypto sphere as well. Numerous people claim cryptocurrency to be in a bubble. In this article, we will discuss whether this claim is true or not.
What does the crypto market bubble mean?
Let’s discuss what is the true and correct definition of a bubble and is this concept applicable to cryptocurrency as well? In simple words, according to science and macroeconomy, a bubble is best described as a situation wherein a market, an asset yields more value during a short period, that too without any potential change in the property. This type of huge growth is often referenced to the extremely volatile nature of the crypto market.
The main point that reflects the true definition of a bubble is price movements. But one thing that is imperative to be kept in mind is that this is only associated with a couple of coins. These coins include Bitcoin, Ethereum, and a few other altcoins. All those coins have a lower market cap. Especially smaller coins, with a low trading volume, showed an exponentially growing price increase. Even though the projects had met with little success. Pump & Dump strategies have been used by investors, as there was a lot of hype around them. That is, large positions have been sold by initiators.
Is cryptocurrency in a bubble?
A question that might arise in a person’s mind is that is the cryptocurrency market a bubble? To truly understand that, it is imperative to know about intrinsic value. Nobody knows the intrinsic value of Bitcoin. It is hard to have a debate on such a currency that is still very new and has to go through transitioning and developing phases. Cryptocurrency's future use is still not identified, as well as if it might be introduced in the financial ecosystem. Hence, the people and experts who are making claims that the crypto market is in a bubble are purely basing it off on assumptions and guesses through its intrinsic value. They always fail to show the stats and logistics of why there is an emergence of a crypto market bubble.
To understand this theory more, let us take the example of Bitcoin. For this cryptocurrency to be in a bubble, its price movements must be completely disassociated with its underlying value. Provided with the shocking increment in the global supply of dollars during a time of high demand because of the recessions that were caused by the pandemic, and recovery-fueled inflation emerging into the crypto sphere will, no doubt, be a challenge to control. It can be debated that bitcoin's underlying value as a possible offset for the ongoing chaos in the economy is quickly increasing. It can be noticed that the price movements are reaching their underlying value.
Why crypto is not a bubble?
Some crypto analysts and experts might also bring up the debate that cryptocurrency acts as an anti-bubble. The reason for this being that the price is increasing due to all the other bubbles in the economy. So many traders are investing money in bitcoin solely because it is a huge sovereign bond bubble, which they think that the government will make attempts to deflate by printing more money. The decentralization and anonymity of Bitcoin come as a great advantage to crypto traders and investors but in many regions, governments are critical of this feature of Bitcoin. They perceive that it supports malign activities and menaces like money laundering. So, there are doubts among Bitcoin holders that governments may try to undermine Bitcoin in the near future.
As far as equities are concerned, the astonishing and rapid market valuations of different companies are highly dependent on less interest rate. It has the potential to increase rapidly if the bond bubble is to explode. If this happens, other alternatives like Bitcoin will be more in demand.
To truly understand the anti-bubble nature, try to think about the change that would occur in the fundamental value if the society did not have any central banks who were not printing out money, a government that had maintained a balanced account and being entirely fearless of the MMT, repressing finance or any other sort of populist uprisings. In any of these cases, the demand and price of a coin would fall much lower than on what they stand today.
Who would have thought that the reason behind the economic bubble could be because of bitcoin or cryptocurrency? Regardless, with updated and effective measures that are being established for protection with time, these measures may include crypto surveillance, authorized and trustworthy trading platforms, anti-money trafficking controls, know-your-customer processes, and Federal Reserve that are eager on accepting the digitized currency. The cryptocurrency market may at the end of the day be a mere coin and one step away from reaching the mainstream world and swaying farther away from being referred to as a cryptocurrency market bubble.
Hence, through all the debate, it can be seen that the claims that were made by the people that there is an emergence of a crypto bubble were not true. Also, the continuously growing value of cryptocurrency in recent times has helped in changing the perspective of many investors and traders about the cryptocurrency bubble. However, it is yet to be seen how the market unfolds in the next few years.
And you, which side you're on? Let us know in the comments below.
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