Is Bitcoin a Bubble about to Explode?

Learn more about what does involve an speculative bubble

It is not the first time someone assures that the project of Bitcoin is a speculative bubble that in any moment could make everyone loose the invested in this type of cryptocurrencies. This creates an environment of distrust around the fact that bitcoin could be a sustainable financial option not subjected to any institution.

If you read us for the first time, know that Bitcoin is a cryptocurrency made of digital files that lives on the internet since 2009. This project is supported by the “Blockchain” technology that makes it practically unforgeable. In addition, it doesn’t have any institution that regulates it or support it, but the same community of users and miners.

The Fear of all Investors

If you are wondering what is a speculative bubble, let us tell you that the prices of any merchandise, including currencies and cryptocurrencies, change for different factors that have an impact in its demand and supply. These factors can be spontaneous or provoked by other agents.

We talk about a speculative bubble when big investors hoard some merchandise, creating an artificial demand, which gives the market a sign that the price of the article will keep rising. This motivates little investors to “enter in the game”, inflating the bubble by acquiring the same article with the hopes that, as the price is constantly rising, they make money from selling it in a higher value than the one they purchased it.

When the time comes, the biggest investors with their investments already assured, decide to sell the merchandise at the higher price, filling the market with that good, producing the fall of the price. Now in panic, the little investors also decide to sell their goods, entering into a downward spiral of price. In some cases, these bubbles are so big that can induce a country to enter in an economic recession.

This time, we will give you a series of theories to determine if is Bitcoin the new financial bubble of the current times.

1. Bitcoin is foreign to the fiduciary system:

This aspect involves certain advantages about the use of Bitcoin, like the fact that you can’t create a debt with this cryptocurrency and its value doesn’t depend of a central bank. In addition, the number of bitcoins created is limited to 21 million units, which means that it is totally foreseeable, being an important quality for a monetary system.

This monetary base can be divided into 8 decimals, which can be modified, guaranteeing the supplying of Bitcoins and avoiding the inflation effects. This eliminates the temptation of governments to print more money to face a debt. The infinity of the traditional money we know, is what makes fiduciary system to generate big deficits.

The owners of bitcoins will know in every moment the exact amount of units available in the market today and in the future. However, in fiat currencies, the central banks manage the monetary supply discretionally.

2. Bitcoin is transparent:

This cryptocurrency is about an open and public web, not controlled by any central entity, offering protection and diversification in front the financial “black swans” or unexpected events. In this manner, Bitcoin could be considered as a perfect covering tool in front of the systematic risk. It has a null correlation against stocks, bonds and oil, being the perfect element to carry out that coverage.

3. It has nothing to do with conventional stocks:

Bitcoin is not an asset, but a technology and in this manner, it can’t exist a bubble around it. You can’t understand Bitcoin without understanding Blockchain technology, because both are part of a everything, so we invite you to read our article about what this technology involves.

Currently, we are seeing how banks are trying to implement solutions to their main problems using Blockchain technology, which gives us an idea about the importance that is getting for bigger institutions.

It’s true that the value of Bitcoins and other assets depends mostly on their demand. However, changes in both demands respond to different variables, in the manner that their comparison can’t take place, knowing that we are talking about elements with different principles.

4. Volatility is reducing each year in an average of 3-4%:

The high volatility of Bitcoin is a general quality about the formation of markets prices, taking in consideration the uncertainty of the topic. In this case, the development of bitcoin involves a decrease of volatility, which is actually happening, going from a 10% of daily volatility to less than a 4% in the current days.

Currently, there have been other developments around volatility. The New York agreement in May discussed the political governance of Bitcoin. Australia is also planning to regulate the exchanges of cryptocurrencies, which means that governments realized about the strength of this project, being an irreversible financial revolution.

Over time, it will be more products like bitcoin’s exchange funds that probably will have a strong demand, helping to stabilize the price. The audience of Bitcoin nowadays is bigger than the greatest stock market in the world, the one in the United States. People is changing from fiduciary money to bitcoin, which represents how the trust is growing around the cryptocurrency.

The qualities of bitcoin give us the idea that it’s not about an speculative bubble. However, we give you the following recommendations not just to invest in bitcoins, but for any other investment you have in mind:

  • If it’s too good to be true, you need to be careful.

 

  • Invest only in what you truly understand and be in constant communication with you financial assessor.

 

  • Never put all your money destined to investment in a single project.
(Visited 132 times, 1 visits today)

Leave a Reply

Your email address will not be published. Required fields are marked *