Why and how would the bitcoin bubble burst, if there was one?


As the “people’s currency” is slashing through the $11,000 price point yet again, some experts are now equating bitcoin with a huge, ready-to-burst bubble. However, as CME Group and Nasdaq are already in the process of launching bitcoin futures and the technology behind the currency, blockchain, is rapidly innovating a series of industries, the question of what will happen if the “bitcoin bubble” bursts still lingers on the minds of investors.

Multiple forks 

One of the most disturbing facts about bitcoin is that since it’s creation and in the recent years of “popularity”, the cryptocurrency has undergone several forks. These forks are “hard” ones, meaning that the community and coders behind bitcoin are “arguing” on what the next upgrade will be. Thus, as of today, we have Bitcoin Cash, which is now surging in value, Bitcoin Gold and Bitcoin Diamond. Although not all of these are available on all exchanges and internationally,  the mere split of the original currency may not be a good sign for the future. Forks essentially signify the “divides” in the bitcoin community, so investors need to be wary of those.

Decentralization 

Bitcoin has been accused of being the “terrorist’s money”. Since the currency is not regulated and is decentralized, a lot of governments and central banks have put bitcoin on their “watch lists”. One example is the failed attempts of industry experts and financiers to launch a bitcoin ETF. The SEC seems to be specifically watchful on the bitcoin-related products, with countries around the world banning the crypto from domestic exchanges. One example was China, with other examples including India, Bangladesh, Sweden and Vietnam.

Hacker attacks 

Another concern over the “future” bubble issue are the possible attacks from hackers. According to NZ Herald report:

“Ever since the 2011 breach of the Mt. Gox exchange, bitcoin owners have had to face the possibility that this intangible asset may fall into the hands of hackers. The Tokyo-based exchange filed for bankruptcy February 2014, alleging there was a high possibility that what was then nearly half a billion in bitcoin had been stolen.

The 2011 breach and 2014 collapse of Mt. Gox were accompanied by steep declines in bitcoin, as was the US$65 million theft of the digital currency from Hong Kong exchange Bitfinex in 2016.” 

Liquidity issues 

When bitcoin passed the $11,000 point, Coinbase crashed. This caused massive outbreak of “angry” investors, who couldn’t profit from the rising price of the cryptocurrency. Apparently, the Coinbase couldn’t handle the rising traffic and at the spike of the “craze”, users were not able to access their accounts. This incident showed the scalability problems associated with bitcoin and the unexpected scale of its price increase. Again, according to the report of NZ Herald:

“Profit-taking opportunities when the cryptocurrency passes significant milestones could foster steep declines and waves of selling pressure due to poor liquidity.” 

What experts think 

While not everyone will agree with financial moguls such as Warren Buffet and renowned economists such as Robert Shiller of Yale University, they may have a point about their opinion on bitcoin. Buffet has now several times pointed at the one thing that nobody can deny about bitcoin: it doesn’t not have any earnings to support the price it currently has. While company shares and bonds’ value all tie down to companies or governments’ earnings. The value of these is in a way, “backed up”. While bitcoin is an efficient way to transfer money, in the words of Buffet: “a check is also a way to transfer of money, but we do not assign such value to it”. While Goldman Sachs CEO, Lloyd Blankfein said that the value of money may be now based on “consensus”, it is definitely worrying to hear the comments of people like Buffet and Shiller on bitcoin. Robert Shiller predicted the market crash of 2008 in his book “Irrational Exuberance”.

Bubble after all?

While all these assumptions may hold true to some extent, the truth is that bitcoin is gaining momentum and the price seems to be increasing on a steady basis, despite the corrections, which are normal. If bicoin is a bubble after all, the current market capitalization of this bubble is around $196 billion. 

 

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Why and how would the bitcoin bubble burst, if there was one?

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