Bitcoin bubble? The Powerful Rise and Fall of Bitcoin

Since its inception, Bitcoin has faced skepticism regarding whether it's in a bubble or simply experiencing a surge in popularity. This notion of a Bitcoin bubble has intrigued many, with claims of its imminent bursting, yet the cryptocurrency persists.

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Introduction

So, what constitutes a Bitcoin bubble? From a financial standpoint, a bubble refers to a scenario where an asset lies dormant for a considerable period before experiencing a sudden surge in value, followed by a rapid decline. However, for it to truly qualify as a bubble, the decline must be significant and sustained.

However, the fall must be very definite - and by "definite," I mean constant. If the asset (in this case, Bitcoin) rises again, then it was not a “bubble burst.”

How do you know if it's an explosion or a false alarm when a fall actually occurs? It's really hard to define - you can't say for sure.

If you are a Bitcoin expert who has been following the coin since Bitcoin came into being, you can tell us a thing or two about its future. However, if we are talking about cryptocurrencies, they have one very important feature - they are completely unpredictable and extremely volatile.

You may have watched Bitcoin every day, but your predictions did not come true. There are so many unpredictable factors that can affect the price of a coin that it becomes almost impossible to track.

Now I will show you why people believe Bitcoin has crashed.

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Bitcoin Bubble

People define financial bubbles in different ways. For simplicity, I will divide it into three categories.

- At the very beginning, the price of the asset is very low and does not attract much attention. It fluctuates a little, but most of the time, it remains at a constant minimum. During this phase, people don't pay much attention to the asset as it hasn't been involved in any notable events yet.

- At a certain point, the asset begins to gain momentum and rise in price. What distinguishes this growth from any other normal asset growth is the intensity - the price rises with increasing intensity and speed. This occurs because people perceive the asset as promising, and they want to invest in it to make a quick profit. The more people start buying, the faster the price inflates - like a bubble.

- The third and final stage is a breakdown - just as the price has risen for no apparent reason, it also falls for no reason. This is where people start panic selling all their assets, fearing that the price will drop even more and they will lose money. This becomes an endless cycle until the price of the asset actually collapses - or in other words, the bubble bursts.

Now, keeping the above knowledge in mind, take a look at the graph below:

This chart of the price of Bitcoin from its inception to today bears resemblance to the features of a bubble - a slow and sluggish start, followed by a sudden peak, and then an equally sudden drop, indicating what seems like a crash. However, the last part is a little different - the price hasn't dropped to zero. Moreover, it appears to have stabilized.

This often serves as one of the primary visual arguments that Bitcoin proponents use when refuting the claim that Bitcoin is a bubble. When a financial bubble bursts, the price typically plummets to zero, with little chance of recovery. However, examining Bitcoin, we see that this is not entirely true.

So, is Bitcoin a bubble? Let's analyze the most common pros and cons to get a more complete picture.

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FOR

People who answer the question “Is Bitcoin a bubble?” positively have several compelling arguments to support this claim.

Firstly, they argue that Bitcoin is simply not tangible - it is a decentralized currency, meaning there is no government backing it. Fiat currencies have stability because they are backed by large banks and governments, and they are sanctioned and incentivized for various purposes, including tax payment. However, when dealing with Bitcoin (and most other cryptocurrencies), this is not entirely true. Different governments tend to sanction Bitcoin in various ways simply because it has no specific owner—no single person or entity controls the cryptocurrency.

Another important argument is that the price was inflated and then Bitcoin fell. This was the first phenomenon of its kind - there were far fewer people who bought it to use it compared to the number of people who just wanted to buy it low and sell it high, thereby riding the rise and fall of Bitcoin.

Because cryptocurrencies didn't really have strong enough backing from supporters, the price continued to be inflated by those who were simply looking for ways to make a quick profit.

Due to Bitcoin's instability, governments around the world have decided to sanction and tax its use, with some even banning cryptocurrencies altogether. This was one of the main factors why Bitcoin fell.

One of the strongest arguments that Bitcoin is in a bubble is that it is simply too old.

Cryptocurrencies such as Litecoin, IOTA, and Ethereum have been able to outperform Bitcoin in almost every possible aspect. Litecoin is four times faster than Bitcoin, IOTA is technically superior, and Ethereum is the real network used to create other cryptocurrencies. Every day, we see new and greatly improved cryptocurrencies appear on the market - Bitcoin was the first and the basis for cryptocurrencies, but how long can this reputation last until people begin to realize the shortcomings of the coin?

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AGAINST

Even though the question of “Is Bitcoin a bubble?” is not surprising, many people still believe in the cryptocurrency and scoff at any claims that it is a bubble. Let's try to analyze the main arguments that these people make.

First, even though Bitcoin's price fluctuates wildly, that doesn't mean it has no permanent value. As mentioned in the preceding chapter, people tend to value Bitcoin for many different reasons. The coin has become a tangible example of a currency that does not require any centralized jurisdiction or management - its value is determined by the people who actually use it. This, in turn, answers the question of why Bitcoin is not a bubble.

While some investors are confident that Bitcoin has peaked, others have no problem investing in something that is volatile.

There are investors who put money into Bitcoin mainly because it is volatile - they hope and expect the price of the coin to skyrocket in the near (or distant) future. This is why the argument for Bitcoin's inconsistency is not a valid reason to describe it as a mere bubble.

It's also worth noting that, well, Bitcoin has had four or five "bubble bursts" throughout the time since Bitcoin came into existence. People have been asking the question “Bitcoin bubble?” for a long time now, and the cryptocurrency has always returned to its previous prices.

In truth, this is the biggest drop the coin has ever experienced, but as you probably saw from the chart I showed earlier, it has already started to stabilize. Many Bitcoin supporters believe that although the drop was more significant this time, it is still just another drop among many.

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Still, is there a Bitcoin bubble?

So, now that we've discussed the pros and cons of whether Bitcoin is a bubble, is there a definitive conclusion? It seems that the fall of Bitcoin has redefined the term "bubble," both in digital marketplaces and in public opinion.

Bitcoin has experienced its share of ups and downs over the years. Each time the coin's price dropped, people made various predictions - from a global collapse to zero or, conversely, a rapid increase.

However, when it comes to the question “Is there a Bitcoin bubble?”, it would be rather naive to provide a simple “yes” or “no” answer.

It's worth noting that, so far, Bitcoin resembles a bubble that has not yet burst. The price of the coin has halted its decline and is slowly but surely rising again.

Various global events influence Bitcoin price fluctuations - some governments ban cryptocurrencies, while others accept them. Every day, there is a plethora of news about various events related to cryptocurrencies. Some of this news is positive, while others are not so favorable. However, what is certain is that all of these events affect the price of Bitcoin in one way or another, and people continue to use it regardless.

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Conclusion

If you were to ask different people, “Is Bitcoin a bubble?”, you would probably get different answers all the time. Some people will convince you that Bitcoin is not at all like a financial bubble, while others will swear that Bitcoin fell irrevocably a long time ago.

If cryptocurrency is a bubble but is still alive, then when will the cryptocurrency bubble burst? Well, the answer is actually quite simple - once it stops being useful to people in general.

In the world of cryptocurrency, there is a golden rule that states that cryptocurrency will be used and prosper as long as it is truly applicable. And if we say Bitcoin has crashed, it doesn't look like it's losing its use.

To the question “When will the Bitcoin bubble burst?”, no one can give a specific answer. Although there have been many similar situations in history (such as the 2008 financial crisis, the Mississippi bubble burst, etc.), Bitcoin is a little different from all the others. Sure, the fact that this cryptocurrency is decentralized has its downsides, but at the end of the day, this is probably its greatest strength.

So, is Bitcoin a bubble? Only time can judge. Even if that's the case, it certainly hasn't burst yet.

I hope this guide was helpful to you. Try to keep up with Bitcoin-related news, and you will definitely be able to form your own opinion on the question “Is Bitcoin a bubble?”