Ah, speculative bubbles. We’ve become accustomed to the term in the past few years after watching the stock market and the housing market come tumbling down from dizzying heights. Now, some speculators and enthusiasts in the cryptocurrency arena are questioning whether that market is heading towards the same fate.
Is This A Bitcoin Bubble?
It’s not surprising that some individuals are calling the recent moves in Bitcoin and other cryptocurrencies a bubble. Bitcoin has skyrocketed almost 100 percent from a low of $935.95 on March 24, 2017 to a high of $1807.37 on May 11, 2017. A bubble is defined as a surge in price in a market where the fundamentals don’t warrant the move. It is always followed by a drastic decline — and massive crash — that brings the market back down to earth, leaving its bullish participants in pain. Bubbles are fueled by speculation from buyers who outnumber sellers. It’s a game of supply and demand where the demand is much greater than the supply. That is until the game of musical chairs stops and there aren’t any more buyers. The market starts pulling back but recent buyers are already in the market. With no more buyers left to scoop up supply, the market continues to fall and quickly escalates when panic selling ensues.
One can argue that this is just bull market behavior in the cryptocurrency market — prices are rising and that’s encouraging more buying. A bull market refers to the type of market that is still in an uptrend. An increase in market price is being sustained and showing no signs of pulling back. When the stock market is said to be in a bull market, it only changes that stance when a 20 percent drop from the high has been reached. At that point, it switches into bear market mode. Now, we’re talking about terms for a market that’s been around since 24 stockbrokers signed the Buttonwood Agreement that founded the New York Stock Exchange on May 17, 1792 — over 220 years ago. How old is the cryptocurrency market? Bitcoin was only invented about eight years ago!
The concept of cryptocurrency is relatively new. Early adopters and the early majority are still learning about this market and staking their claims. Word-of-mouth is often one of the best marketing tools and that can clearly be seen by looking at the growth of searches on Google Trends for the cryptocurrency Dash in the past month — it has become quite popular. Like stocks, each cryptocurrency has its own fundamentals. New symbols are being added to the market almost every day. Speculators and traders are going to have to determine which of these digital currencies have the best aspects of surviving and thriving in the future.
Are we witnessing a Bitcoin bubble? In such a fresh, young, new market, probably not. Volatility is definitely part of trading these beasts. A speculator will have to determine when they want to sell and when they want to buy. Whether that’s based on fundamentals and the security or options that each individual cryptocurrency offers or just by examining the movements of the charts. The cryptocurrency market is just getting started. You should always invest with caution as Bitcoin has burned many in recent years.