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Is Bitcoin A Bubble Waiting To Burst?

Before 2009 no one had ever heard of the Bitcoin.

But in the eight short years the cryptocurrency created by the mysterious Satoshi Nakamoto it has grown to be a financial phenomenon across markets as diverse as London, New York and Singapore.

Many reasons have been given for its popularity and success. These include the novelty of having a peer-to-peer method of financial transactions not linked to any government or bank as well as the relative anonymity and security of the system.

Admittedly, it has not been a smooth and constant ascent in value. Over the years there have been huge fluctuations. For example in summer 2017 its value has been consistently over $3,000 and rising but during the Bitcoin crash of 2013 it was just £70. However the situation in which we find ourselves today is that the value continues to rise.

The Rise Of Bitcoin

Fuelling this dramatic increase is the fact that more and more mainstream companies are starting to accept Bitcoin as a form of payment and also that it is gradually moving towards being considered as a commodity like gold or oil with many people choosing to speculate on its value via sites like IG online investment.

This is largely driven by the fact that anyone with the foresight to buy $1,000 worth of Bitcoins in 2010 would now find that they would be worth upwards of $35 million at today’s value – and with appreciation like that, it’s certain to catch the eye of speculators all round the world.

Where Next?

With regards to whether this is a bubble that is due to burst, there are undoubtedly two schools of thought. On the one hand some observers feel that there is still plenty of potential for growth while others are seeing warning signs flashing.

But one of the key difficulties in trying to predict which way things will go is the fact that Bitcoin is unique and, therefore, can’t really be judged in the same way that stocks, commodities or currencies can be.

For example, the standard “price to earnings” ratio that is often used to gauge the true value of an investment opportunity doesn’t really apply as, in many ways, Bitcoins are a fairly abstract concept and are not backed by gold or other reserves like standard currencies are.

The Warning Signs May Be Mounting

The main fear for those who do believe that a crash is just around the corner is that, just like the dot.com bubble of the 1990s, frenzied investing will create so much heat that a bull market will soon be transformed into a bear one.

If the worst does happen there are also fears that the damage will only become apparent when it’s too late as, currently, there’s little transparency about just how far Bitcoin transactions have become embedded in the financial system as a whole.

But it’s certainly too early to really start about thinking about worst case scenarios like this as there does still seem to be considerable growth potential.

Although, just how great that potential may be remains to be seen.

 

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