Bitcoin’s enthusiasts are torn between whether to celebrate Bitcoin’s arrival in the foothills of mass adoption, or to lament the upcoming burst that always happens with asset bubbles. There is evidence for both points-of-view, as some indicators point toward Bitcoin’s imminent mainstream arrival, while others suggest the price is in bubble territory.
Bitcoin’s price increase
Bitcoin entered a bull market in August 2016 at a price of about $550 per coin, according to data from Cryptowatch, leading the currency to surmount its previous all-time high back in March of this year. Since March, Bitcoin has been on quite a tear, rising from $880 to a high earlier this week of $3490.
Bubble territory
Such extremely rapid price appreciation is not usually considered normal in the investment world, and may presage an epic crash. Since one year ago, the Bitcoin price is up by 611%. Since March 2017, the price is up by 381%. This points to rapid, perhaps unsustainable, growth.
But what exactly is a bubble? Investopedia defines it as:
“A financial ‘bubble’ refers to a situation where there is a relatively high level of trading activity on a particular asset class at price levels that are significantly higher than their intrinsic values.”
The catch is the term “intrinsic value.” Not all rapid price appreciation must necessarily be a bubble. To meet the definition, the price of an asset must have greatly exceeded its intrinsic value.
Mass adoption
Unfortunately, nobody knows exactly what Bitcoin’s intrinsic value is at this time. There are a number of signs that point to major shifts in the reaction of industry and government with respect to Bitcoin. Though the SEC rejected two proposed Bitcoin ETFs, the Commodity Futures Trading Commission (CFTC) recently approved LedgerX’s application to trade Bitcoin futures contracts.
Meanwhile, in other parts of the world, Japan and South Korea have officially legalized Bitcoin and allowed it to be used for payments. Additionally, the Blockchain technology which underpins Bitcoin has begun trial use in areas as diverse as social media.
