The price of Bitcoin has been up and down so much recently, that you may be wondering: When will the crypto bubble pop? While it’s hard to tell how long it will last, it’s safe to say that it’s a speculative bubble. And despite what the headlines say, the crypto bubble is not going to burst today or tomorrow. Let’s take a closer look at what makes it a bubble in the first place.
Bitcoin’s price has fluctuated wildly
The rise of cryptocurrencies is fueled by a belief that prices will rise. The technology is easy to replicate and can even be made with minimal coding skills. Cryptocurrencies are becoming a hot commodity and elicit similar fears as the Dot-com bubble. The Federal Reserve has signaled that interest rates will rise in December, and investors have been left wondering, “When will the crypto bubble pop?”
As the speculative train reaches the historical necessity of the cryptocurrency market, it may be unable to sustain itself in the long term. It could die painfully and wipe out millions of people’s savings. As such, the crypto bubble is the biggest ever. But it may not pop today. It may even go through a cyclical correction and fall dramatically, but the crypto bubble will burst when the speculative nature of the market dies down.
It’s a speculative bubble
Many investors wonder if the cryptocurrency bubble is a product of excess liquidity or simply cutting-edge technology. After all, bitcoin has a hard-coded limit of 21 million coins. A global network of computers mines approximately six new coins every 10 minutes, adding about 900 BTC a day. Many investors also wonder if crypto markets are merely speculative bubbles.
The term “bubble” has become overused in financial media in recent years. As the Federal Reserve pumped trillions into the economy, the short-term federal funds rate has remained at historically low levels to address the COVID-19 crisis, stock market valuations have stretched beyond traditional metrics. The real estate market, meanwhile, has never been hotter. While the market continues to grow, it’s hardly safe to invest.
It’s not a bubble
Some people think that the cryptocurrency market is just another speculative bubble, and they want it to pop before it ruins our lives. But if we look at how much leverage it has, the answer is “yes.” That’s the reason some hedge-fund managers have warned that Bitcoin may collapse. But what if that doesn’t happen? Will bitcoin collapse? What about the other digital currencies?
Historically, there have been only a handful of instances in which digital currencies have lost more than 30% of their value in one day or four months. Yet, there’s no evidence that the Canadian dollar has experienced similar price declines. And, while it’s unlikely that the Canadian dollar will drop 30% in a single day, the market isn’t directly linked to the price of bitcoin. It’s hard to predict whether a crypto bubble will burst, because the incentives for speculators are a huge factor in the success of the digital currency market. Furthermore, the media largely discourages critical analysis, which is necessary for an accurate forecast of the future of cryptocurrencies.
It’s too volatile to make a good short
Most bears on bitcoin and other cryptocurrencies are not actually shorting them. They are merely monitoring them, waiting for ‘the last straw.’ In the movie, The Big Short, hedge-fund manager Michael Burry complains that nobody is paying attention to the leverage of cryptos. His theory is that if the bubble gets steep enough, it will burst, just like the dot-com bubble in 1999 or the housing bubble in 2007.
The ongoing crypto sell-off is also linked to high levels of inflation. In the US, inflation hit 7% in December, the highest since 1982. The US economy isn’t stagnant, but supply chains are struggling to meet demand. In addition, the Federal Reserve is planning to raise interest rates three times in 2022. This move has fueled volatility and speculation in the crypto market.
It’s dominated by bullshitters in the echo chamber
The Crypto space is filled with scammers, pyramid schemes, and privileged white guys. The only way it can be a success is to convince people that it’s not a scam. Until now, the only way to understand what Crypto is and how to profit from it is to ignore the hype and believe it’s not a scam. People who want to make money from Crypto will never be honest about it, nor will they understand the purpose of Crypto. They want to pump the bubble, sell it at a huge profit, and cash out.
The crypto world has been mixing with the mainstream for so long, that it has created an inflated narrative and borrowed from other industries. The crypto bubble has become an investment vehicle and a weapon to revolutionize finance, and its stakeholders have been echoing each other in an echo chamber. As the crypto bubble grows, it’s only natural for investors to want to join the fray.