is it ripe for one?
The world as we know it is largely dominated by the rule of the fiat. Whether pegged on gold or oil and gas, economies live and die by the value of the fiat. The mighty US dollar served as a benchmark of all the world’s fiat currencies in relation to their monetary values. But the fiat’s inflationary nature makes its value cheaper by the day, as reflected on the price movement of commodities based on availability and scarcity, and the number of times and how much the benchmark currency is printed.
The rise of cryptocurrencies, however, cannot be directly attributed due to the sagging of the fiat’s purchasing power. As the Internet has provided mankind the opportunity to create anything into virtual realities, digital money is no exception. Just to be clear, the invention of Bitcoin as digital money gained nobody’s attention as its value equated to the dollar is next to nothing. Decentralized in its core being, the world’s first cryptocurrency was totally unregulated and highly speculative as an asset. Retail investment caused much of its wild and unpredictable market volatility throughout the first ten years of its existence.
After constant media exposure, coupled with serious research and numerous studies, Bitcoin’s traction began to set in. The creation of thousands of other cryptocurrencies is a testament to the fact that digital money can work on legit projects. Institutional investors began to march in by buying millions and millions worth of bitcoins as means to store a substantial part of their earnings, wealth, and treasures. Former staunch critics of digital monies came to regret their statements and their conversion to advocates are contributing much to the weight of value that cryptocurrencies are starting to have and to hold.
Many cryptocurrencies, though, perished along the way. But those with strong contentions thrived on weathering the storms. ATH (all-time highs) has become a byword in crypto circles as, on a daily basis, numbers and percentages have risen to dizzying heights. As optimists dance on the ceiling, pessimists and realists collaborated to warn the world and floated the word – bubble.
A bubble is like a balloon that bursts upon reaching its peak caused by the air from within, by an external prick, or by its own weakening. An economic bubble is hereby defined by credible sources. Nasdaq states that a bubble is “a market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset.” From Investopedia: “During a bubble, assets typically trade at a price, or within a price range, that greatly exceeds the asset’s intrinsic value (the price does not align with the fundamentals of the asset).” To Wikipedia, it means “a situation in which asset prices appear to be based on implausible or inconsistent views about the future. It could also be described as [an asset that trades] at a price or price range that strongly exceeds the asset’s intrinsic value.”
The Crypto Bubble – Real or Imagined?
That being said, Bitcoin and other cryptocurrencies, nascent as they are, may not yet fall under those traditional definitions stated above since their intrinsic values have yet to be established. Whereas, an asset is said to be in a bubble if the price is incredibly increasing without any relation as to its intrinsic value.
Using bubble predictors, a lot of these cryptocurrency bubbles can distinctly be associated with its volatility and volume, An Elsevier study reveals. Detecting multiple bubble periods among select cryptocurrencies for the period 2017-2018, it found “that higher volatility, trading volume, and transactions are positively associated with the presence of bubbles across cryptocurrencies.”
Historic Crashes and Booms
After the great crypto boom of 2017, the great cryptocurrency crash of 2018 that followed saw a major sell-off of cryptocurrencies, causing an 80% collapse and sent bitcoin spiraling head-first at 65%, then to more than 80% loss in value.
- December 17, 2017 – Bitcoin ATH at $19,783.06
- December 22, 2017 – Bitcoin crashes 45% from ATH to below $11K.
- January 12, 2018 – Bitcoin further depreciates by 12% after rumors of a Korean ban on crypto trading.
- January 26, 2018 – Japan’s Coincheck was hacked $530M of the NEM, suspends trading operations.
- January 26 – February 06, Bitcoin fell to $6K hounded by continual negative news.
- March 7, 2018- Irregular trades were discovered at Binance using compromised API keys.
- March 2018 – Facebook, Google, and Twitter ban ICO ads and token sales.
- November 15, 2018 – Bitcoin fell $5,500 cheaper, and for the first time, Bitcoin’s market cap drops beginning October 2017 below $100 billion.
- January 7, 2021 – Bitcoin booms soaring sky-high to more than $40K, a 700% mark-up since March 2020. Experts warned of an inevitable crash.
- Wherever Bitcoin goes, other cryptocurrencies follow, or so it seems.
January 7, 2021 marked the first time the total market value of cryptocurrencies overall topped an unprecedented $1 trillion. Bitcoin, for its part, flexed its muscles to market dominance just this January to a sonic boom never before seen and heard in all of financial assets fifty years past. Yet unregulated as it can be, crypto’s fickle behavior may keep it a risky investment that a bubble is always an imminent threat.
But with better safeguards being developed through the years, such as crypto custody, licensed and credible crypto trading services, anti-money laundering measures, know-your-customer procedures, and central banks open to options for their own digital currencies, the cryptocurrency industry might just be a coin and a token away from knocking on mainstream’s doors, further away from any bubble.
Who knows, the bitcoin and crypto surge can be the direct result of bubbles happening around economies.