If you have turned on any financial news channels over the last few weeks you have likely heard some talking head referring to Bitcoin and the rest of the altcoin market as one giant bubble, ready to burst.
However, upon doing some critical thinking and a bit of research I find that likely not to be the case.
In order to decide whether there really is a bubble or not, we must first establish what a bubble is.
Investopedia defines an economic bubble as this:
"A bubble is an economic cycle characterized by a rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices that is unwarranted by the fundamentals of the asset and is driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate."
Now that we have a definition, why do I think that Bitcoin etc. doesn't fit this definition, at least not yet?
One reason is basically the same reason that you and I are even talking about it right now. When bubbles are truly in their blow-off top phase, hardly anyone actually thinks it's a bubble.
In fact, it is usually quite the opposite.
That is the reason it bursts in the first place.
At the peak of price cycles you have everyone on the same side. All the bears have been converted to bulls and have bought in hoping for the ride to keep going.
When there is no one left to buy, that is when the music stops and the bubble bursts. Leaving many hurt investors along the way.
This chart shows the price cycle of bubbles fairly clearly:
Looking at the above chart, I would argue that we are somewhere on the far left, possibly the "take off" phase, right at the beginnings of when institutional money is starting to get involved.
As long as there is plenty of skepticism out there I would tend to argue that we are not close to bubble bursting territory.
The 2nd reason that I don't think we are in a bubble...
Unlike some other assets that are driven up exuberantly, Bitcoin and other cryptocurrencies actually have utility value.
They are a means of transaction. They can facilitate international transactions in a fraction of the time and at a fraction of the cost. There is real value in that.
Plus it can't be manipulated in the way that current means of transaction can (dollars). The supply is known, there is no trickery going on with central banks adjusting the money supply. Which means it has a very real chance of supplanting those means at some point.
Not to mention each cryptocurrency has a network behind it. Steem is the perfect example of this. There are literally thousands of users on steemit.com every day that interact and communicate on it. Each person could literally bring in an exponential number of new people to cryptocurrency at any time.
If the base is growing, it's price likely is growing as well.
The 3rd reason I don't think we are in a bubble...
How many people do you know outside of steemit that actually own any cryptocurrencies?
For me personally, I can't name one person that I know that even owns a single Bitcoin. Not one. Keep in mind that I have worked in the Finance sector for several years and still talk to many investor and trader types and not a single one of them owns any cryptocurrency.
When Grandma and Grandpa start calling me up and asking me when the shiny new bitcoins they bought will arrive in the mail that is when I will start getting fearful of a market collapse.
Conclusions:
These are just a few of the reasons I don't think we are in a bubble, there are probably a few others that I am missing but in my opinion these are some of the biggest indicators telling me there is plenty of runway.
The next time someone tells you we are in Bubble, show them this chart:
Then think of how many people there are in the world (7.5 billion) vs. how many of those actually own a cryptocurrency of any kind. Think of how many hedge funds own cryptocurrencies. How many investment funds, how many insurance corporations etc etc...
Basically none of them have gotten involved in any meaningful way yet.
We haven't even scratched the surface of what could be coming if these things reach their full potential...
That's what gets me really excited.
Keep the dreams alive my friends!
Sources:
http://www.investopedia.com/terms/b/bubble.asp
http://charleshughsmith.blogspot.co.uk/2017/06/projecting-price-of-bitcoin.html
Image Sources:
https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubble.html
http://charleshughsmith.blogspot.co.uk/2017/06/projecting-price-of-bitcoin.html
Follow me: @jrcornel
Your last graphic hit home. The crypto markets are a cycle - hopping from bubble to bubble.
I disagree with using the utility of a product being any indicator that there is no bubble. I also think with the state of the ICOs and the like, there are plenty of uneducated investors entering the markets to call it a bubble.
While crypto may very well be extremely undervalued, it can still be in a Local Bubble. There are very few people in this space right now - on the order of a few million. Of those there are probably only a few thousand who could articulate the merits of their blockchain investment.
Looking locally - I would say that a lot of crypto is in a Local Bubble this summer. There is way too much money pouring into the space for it not to be. Even if long term this is not a bubble.
Check out more of this viewpoint in: What it is like riding Bitcoin bubbles: an adventure through the present cryptocurrency explosion
Yep. I was just talking about this with another person in the comment thread. There are smaller booms and busts along the way. It is all relative and really just depends on the time frame that you are looking at.
I really liked his graphic here:
On a side note, you do make a good point about not all of the crypto space being created equally. There are certainly bubbles within the space. I think I am referring more to the top handful of names within the space, as well as steem of course because I think it will eventually be a part of that group.
Agreed.
USD is also a bubble
Okay well everything is a bubble
Fast acting correction phases happen. Not crashes or bubbles.
The thing we need to realize, is that this is no longer, traditional style trading. It is SOMETHING else. In order to understand the outcomes, you MUST understand the process. If you pay attention the less likely to succeed coins have a harder time correcting themselves due to lack of SUPPORT. While the stronger SUPPORTED coins suffer the same PULLBACK, the correction is much faster. In essence, the weaker coins are what holds the market back. Reason being, the values within the Market respect each other, as well as TRENDLINES. Ultimately we are investing for the future of the world and this "New Era in Investing to suit your lifestyle Modestly". In this market there is NO tolerance for greed or Prejudice. We get what we give. Love, Support, Guidance, Self Worth and SOOOO much more. When you support and surround yourself wit GREAT individuals, everything else happens ORGANICALLY.
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Yes, bubbles may come. It will come. But this is not what matters...
Honestly, I do not even care, how many bubbles we will see between today and say 2030. The only thing that matters ( to me) - is WHERE it will be in 2030.
Bubble bursts are great oportunity for late-commers to get in. Cryptos will never go away on planet EARTH
Totally agree on that one.
yes that's exactly what I tell myself & my friends to wait till it gets a huge drop even if you're looking at it now on an uptrend and it's around $2.5k and it goes up 4k and then it gets it's huge drop @ 2.8k then i get in @ 2.8k at least I save myself some heart ache getting in at the dip... lol... learned my lesson during the dotcom bubble... Our journey
Great points. There will be many booms and busts along the way, but the lows will higher and so will the highs. As it continues to trend upwards. I really like that last price chart. :)
Hahaahaha smartest/funniest thing I've ever read about the cryptobubble.
I believe that Bitcoin will collapse eventually. Why I think that is the limitation Bitcoin has. On the other hand, Ethereum has a much broader platform which developers can extend their ideas much more easily. Of course, this is just speculations with some rational thinking.
Ether is designed to be fuel for the Dapp ecosystem. It is not a currency. It was never designed to be a currency, and future development will not be focused on it being a currency. It's great in the mid-term because it has great prospects and provides a stable place to store value. However, over the long term, people looking for a currency for exchanging will look to use a more appropriate "currency".
I think the "currency" they choose will be based on the type of transaction. Bitcoin is great for large transfers, but it's slow and expensive to transfer. This is where currencies like Dash and others really stand to shine.
Yea plus all the wallstreet type money that is starting to back it... Ethereum is coming for Bitcoin that is for sure.
ether coin will be the winner
Man this could really happen. 10 Ether for one bitcoin sounds really strange. I would really love to get my 100 ETH back I sold for 3.8 BTC in march.
Nice approach
I'm not sure I agree. The infrastructure surrounding the bitcoin is getting stronger and stronger. We all know that platinum is more valuable than gold, but gold remains the preferred precious metal to the masses. That is, it will be the digital currency of the masses, while ETH will be the currency of complex business. The question is, will Ethereum be able to handle the IOT demands. I've been buying up domain names on the Ethereum platform, and the performance has been sluggish, if not downright frustrating. Bitcoin works now. ETH is still a promise. I guess we'll see. If we don't see some quality, live applications of Ethereum by Xmas, we could see it face a dot.com correction. If they get things rolling by then, it has a very good chance of maintaining through the inevitable correction, then skyrocketing in March.
Thoughts?
I think that Bitcoin will always maintain a mythical status as the pioneer coin that arrived along with the blockchain and legend of Satoshi. I believe that this emotional connection people feel with this creation story will result in a dedicated crypto-community that will keep Bitcoin at the core. Other coins will continue to populate the ecosystem around Bitcoin and some may gain broader acceptance, greater utility, or even possibly higher monetary value, but Bitcoin will always be the Sun in this Crypto-Universe.
Well said!!!
Following and voted, my friend!
Thanks, following you now as well. What an exciting time to be alive and so happy to have something positive to put energy into for real change in this world instead of just complaining about broken centralized powers.
Amen!!!!
Not saying that crypto is a bubble (I actually think the opposite), but in many ways, it's is the perfect "bubble". The more its price rises, the more incentives people have to build on top of it, which then adds value, causing the price to rise. For those who have read any Soros, its the perfect reflexive asset.
Great point. The price rise almost helps build it's fundamental value in a way.
BTW, I've have seen that typical "bubble curve" so many times. And one thing does not leave my mind: it is all so much relative.
I can easy speculate that named as "despair" phase is just a small "bear trap" dent in a much MUCH bigger cycle. Like this:
Yes, prices tend to move like this in many different time frames, it all just depends on what time frame you are looking at. Thanks for sharing that. It's a neat chart!
ha ha...i mastered this chart myself in a few minutes, from the same widely seen prototype. :)
I think bitcoin it's not in a bubble...but of course the fluctuation are huge, there are a lot of crypto i think is bubbling now like ethereum. By the way im starting to follow you and upvoting you
Ethereum has a lot of institutional money backing it compared to the others. It might just be at a different stage in the price cycle.
It's complicate to explain but i feel there are something dark beyond ethereum
I've been reading and reviewing many places that I could buy my first bit of cryptocurrency, figured I would go on and try coinbase and also get some etherium....I see your post saying something dark about it, maybe complicated to explain, but then where would you start? I'm talking just a couple of hundred to try and at least start. Figured one etherium.
Everything seems to be going for it, what few things do you see that looks bad?
I write the same in another post
There are something dark in ethereum project, different to other types of twins crypto like golem gnosis and augur, the concept beyond ethereum its shadow. I don't see a concrete utility from a smart contract, andI I don't think one Dapps (a decentralized app) can do the difference from App. Ok bitcoin, the revolution about crypto si the anonymous and concretely we DONT KNOW WHO IS SATOSHI NAKAMOTO, and I think is better, because we trust in an algorithm, in an automatic system, we trust (sorry for this metaphor) We trust in math. In ethereum we know, name, surname address of this gentleman working in this company and it's possible for the foundation to shift the algorithm. For example, we know will shift from PoW to PoS, is not Defective money, is inflation. If Vitalik one day waking up think to increase the base of ethereum supply he can. It's good to speculate on ethereum but please I wouldn't listen is Bitcoin 2.0, it's better to other crypto or other bullshit. Maybe I'm wrong, maybe I'm not, but identical to the people back on ethereum and Sirs i prefer believe in Math than people.
Well you sent me down a rabbit hole!
First I have to say again I'm new to this. I've been reading what blockchain is trying to see where and how people even buy crypto, what's mining, what is steem and how it works, I've been reading every chance I get! But you posted about PoW vs PoS soooooo back down the rabbit hole I went, started of reading about PoS vs PoW, which now I understand what you meant, then to distributed consensus to hard fork, PoS virtual Mining.... it's just so much to learn. Thanks for helping and well ... back down the rabbit hole. Lots to learn!!!
ether coin will be the leading crypto
I agree with you.
A lot of really good points. I keep on seeing "Crypto Bubble" news everyday on facebook and I think it is just a ploy to cause prices to dip before investors start hammering away at it with their money.
Resteemed and Followed!
I keep seeing the same as well. Thank you for the follow!
The more people say and think this is a bubble, the less likely it is one. The teltale sign of a bubble is people not seeing it until afterward. :D
You are probably onto something here.
Bingo. They will call it a bubble all the way up, then they will change their tune and hop on... saying this really is revolutionary technology. At that point we are getting close to toppling over.
Pretty much, once people stop thinking it's a bubble, then a bubble might really form. I think these are exciting times. Should be a fun few years.
That is what I am thinking as well. I can't wait for the first big dip in Bitcoin. I need to pick up a couple long term holds but I want them for cheaper than this price.
Opinions will always be there, there are many influential people who do not want bitcoin and the criptomonedas, the market will always have these ups and downs, but surely the peaks will become bigger, in ten years the values we will not be able to believe, it does A month approximately lei a report that predicted that the steem for 2020 would surpass the u $ s 30 dollars, transfer that to bitcoin
Thank you very much for this great material
you have a good day.
Yes that is the hope! Thanks :)
I hope you are right :-) Exciting times indeed.
Me too :)
Ever notice that anything doing well in the financial markets is a "bubble"? Whenever the "experts" can't explain something, it's a bubble.
Great point. Yes I have noticed that. That and when they missed the boat on it hoping it will pullback so that they can get in...
Thank you! Very informative read :)
I was taken aback by another article on why it's bad to buy cryptos now, it was very believable. This article of yours made me go back to believing it will be worth my time if I start investing now, and that it's not too late.
My best advice would be to buy in a little at a time. On a long time frame now might not be a bad time to buy, however, on a shorter time frame you might get better opportunities than this. Therefore, the best thing you can do is buy in a little at at time. Don't invest all your money all at once.
agree, nice approach
I will do that. Thanks! I'm not investing that much. I'll do it little by little as you've said.
Good advice. I feel that no matter what price you pay for a coin, at some point you may likely pick up more for a better price.
I love that last chart.
For me, the fact that those financial news channels are screaming "Bubble, Bubble, Bubble!!!!" is confirmation that they're scared shitless of it and don't have anything to combat it.
That very definition of Bubble seems to describe the Dow lately.
Where do these stock valuations come from?
They realize that if Joe Day Trader gets wind of an alternative, they're done for.
Just machines trading with machines over there...
But yes if everyone is screaming bubble, it isn't one.
Very good info on Bubbles or NOT! You get an upvote and a resteem.
bitcoin is not in a bubble and so are we not in a bubble..... thanks a lot for sharing
Nice charts... Certainly a bubble though. This is just like every other bubble in the past. People are willing to pay more for something than it is worth because they believe it will be worth more. At some point though, reality kicks in and no one else is willing to risk any more. At that point, she pops. Enjoy the ride, and try to cash out before it blows!
If cryptocurrency is in a bubble now then it will probably just die out. There's only ~$90B in the space which is peanuts if this really is a big part of the future of money. Now there certainly will be winners and losers and bubbles will form and pop within the space but as for the space itself... I doubt it's a bubble.
just keep few coins waiting for emerging future
I agree with you sort of, but I am more along the lines of this:
I'd like to thank @onealfa for this chart
I agree. It seems like the hype is still not over, so crypto will be going way up before it drops down again. Or at least until it hits its point of resistance again. Roller coasters!
prepare to buy few coins just for participation
Sounds like a good idea.
Good explaination, totally agree
Great post, i realy think you are right :)
Have a look at Diamond coin, couse if they get started there wont be a stopping with that low coin supply!
https://coinmarketcap.com/currencies/diamond/
Good post! I agree, I think we're just getting started. If you look back to when Amazon and Microsoft started for example, their stock prices were tiny. I think the cryptos are a new concept that is here to stay and the huge price growth is yet to come!
Buy and Hold as much crypto as possible!
Simple and to the point 👍🏽
I often think about how tiny we crypto-holders are. We represent such a minuscule sliver of the population. I certainly believe we are the very lucky early adopters. I work with a couple guys who are actively seeking investment opportunities, and they scoff at the idea of crypto when I tell them about it. They just can't grasp the concept of owning something that isn't tangible, or doesn't manifest in a physical form. I suppose that is the reason they will be left behind one day, realizing they missed an opportunity of a lifetime. The way I see it is that early investors in crypto currencies are like the early investors in the American railroads in the 1800's. Our wise investments are going to pay out for our children, and possibly on down the line.
I like the way you put it so I upvoted your comment! It's like the beginning of the rail roads and the tracks are just getting started!
WHHOOOOOO WHHOOOOOOO!!!!!!
LOL, well put my friend.
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Thank you! :)
I think we just got passed the first bear trap (if there is such as thing). Still way too long to go
Eggzackly. I'm so tired of the MSM treating it the way they do...but then again...it's actually helping our cause. So the more they talk shit about it...the stronger it's going to become. So Steem ON my friends!
If it is a bubble, I see it getting much bigger than any bubble we've ever seen.
crazy good article. well written and cannot wait to see where the new crypto world can take us.
some day will replace USD
Really well written article. I think regulation is scaring away big money investors and it will take adoption by some credible "real world" institutions for the true market value to be felt. When it does the top 10 coins will flourish (ie. Steem).
deserve resteem and upvote....
Amen Brother!! I've been telling people this for a while now.
Disclaimer: I am just a bot trying to be helpful.
well isn't that nifty
I was illustrating this graph you put up to my dad on coinbase. The trend line is up sir! Those are some beautiful W's and not worrisome M's.
This is one of the best article written on crypto currency. Thank you for a job well done.
"When no more investors are willing to buy at the elevated price, a massive selloff occurs, causing the bubble to deflate".
Investors keep buying and buying, it's a matter of trust. Something has value when it's useful and scarce, cryptocurrencies are both!
More than a detailed survey, the positive thing is it is not of today belonging to the past I am looking forward to some future trends which are outside the graphs
This is totally uncharted territory for all of us. Everything else is a bubble except for crypto. The stock market is superbly over valued and could crash at any moment. We are a part of a new economic and monetary system that will explode as soon as is goes mainstream. The future looks very exciting.
Excellent post - thank you.
Fantastic analysis, agree 100%... we are not in a bubble... A bubble could happen but not yet
If I hear one more person say, "Tulip Mania"... For the last 4 years, every time bitcoin starts to accelerate, that's what people say. Tulip Mania actually only lasted for less than 5 months (Mid November 1636- Early February 1637).
I think a lot of people hope it is a fad that will crash since they missed out on the beginning, not realizing we are still in the beginning.
Very informative article! All you ever hear about crypto currencies and bitcoins (at least from the people not involved with them) is how they will soon crash and burn. While they do fluctuate immensly, I hardly think they are in a bubble right now.
I would love to be able to speak from a more informed point of view, but I'm still quite new to the world (besides mining Dogecoin and Litecoin many years ago!). Informative post and thanks for doing all this research :)
Excellent post @jrcornel. Really useful to understand what a bubble is and what is not! Regards!
Cryptocurrencies are the best investment since, well, ever.
Hi I am new here and really agree with things you post . I am now following you .. : ) Thank you for doing the researches and taking the time to share with us .
I've been working hard at becoming less clueless when it comes to crypto, these posts are a help ;) I actually am going to be putting up my own crypto post...mostly for fun, though I think anyone at my stage would appreciate it, hee.
I bet this will get higher, every time I think it cant get higher it proves me wrong!
@jrcornel I think bitcoin is here to stay , because this so much effort going into it gotta be planned , and as you said it just financial cycles !! great post UP and RS
Exactly, we've only just begun since Bitcoin and cryptocurrencies haven't even hit mainstream yet. Only a matter of time before the whole world catches up. I foresee BIG things for crypto and Steemit: party time on the moon!
BTC will probably hit the 3000$ before September
good views. thanks.