Cryptocurrency, according to economists, is the greatest financial bubble. Though many experts have labelled bitcoin as a bubble due to its increasing value in recent years, this does not always indicate it is. In economics, a bubble occurs when the price of an asset exceeds its intrinsic value. Prices usually rise in a bubble when people have a very favourable attitude toward an asset. When bubbles inevitably bust, people are left with nothing if they didn’t sell the asset in anticipation of a price increase.
Cryptocurrency follows this exact pattern. For example, bitcoin’s price has increased by 900 percent in the last year, and its rise in value is still unpredictable.
What are people’s opinions on cryptocurrency?
When it comes to cryptocurrencies, there has always been a divide of opinion among the public. However, as a result of the new market stream, public sentiment is turning in a more favourable direction. The majority of individuals believe that this is the worldwide currency that is now becoming mainstream, with strong chances of an increase in value.
Current Status Of Cryptocurrency:
Many market observers believe that cryptocurrencies are behaving in a way that could be associated with a bubble. This is particularly true for bitcoin, which is not regulated by a central bank. On the other hand, Ether has real-world utility, but it is still in its early phases. Furthermore, the supply of bitcoin is finite, whereas ether has no limits in its supply. Though experts are correct in their belief that we are in a cryptocurrency bubble, there is room for a correction in the near future.
Prediction Of Bubbles:
Bubbles can only be observed once they have been popped. Until this moment, it’s tough to notice them. For example, in the year 2012, several analysts believed that Apple’s stock had inflated after reaching the $100 per share milestone. It has been more than 6 years since there has been pop.
Valuation Of A Cryptocurrency:
Though many people do not sell their cryptocurrencies and maintain them as stock, determining their fundamental value is difficult. Although it has currency in its name, it does not function as a currency because its valuations cannot be compared. Cryptocurrencies are gaining popularity simply because they are new to the market. Cryptocurrency is met with skepticism, as is the case with any new technology.
The fact that the market is crowded with cryptocurrencies adds to its complexity it. From one view, the values of Ethereum and Bitcoin are not actually bubbles, but the rise in the number of new cryptocurrencies in the market confirms the existence of a bubble in the cryptocurrency market. And each of the new ones is attempting to entice as many purchasers as possible. If we analyse this, we can conclude that cryptocurrency is a bubble. However the debate remains subjective.
Conclusion:
If we look at it from a broader perspective, determining whether Cryptocurrency is a bubble or not is difficult. The definite answer to it lies in the future. When trading with cryptocurrency, one must be cautious of his investments. Assess your return on investment and the level of risk you are willing to accept and proceed accordingly.
For more information about Cryptocurrencies and how to invest, you may contact our experts.
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