Lately I heard a lot about Bitcoin and cryptocurrency bubbles. Many cryptocurrency traders of course say it is not a bubble at all. Lets see about pro and cons.
Pro bubble Main arguments for a bubble are:
- price movements - we all know the comparision charts between Bitcoin and tulips or Nasdaq while dot.com-time
- high entusiams and very bullish outlook of many in the market
- many new inexperienced traders coming into the market
- many ICO's
- public attention and the so called "dumb money" is buying
Cons bubble Main arguments from hodlers and Bitcoin traders that it is not a bubble:
- it is still a small market and far away from any market cap like Nasdaq stocks had during dot.com
- in relation to stocks there are still only a few people in the market
- some even say it is not an asset and therefor it can't be a bubble
- due public attention it will go up even more sine more people want to get into the market and buy
What is my opinion?
In my opinion we are in a bubble and so let me explain why. First of all the arguments that it is a bubble are valid. We have seen very similar circumstances already in many bubbles before (not only during dot.com). dot.com is surely without any doubt one of the most famous bubbles in our time, but by far not the only one. There have been many more.
I even also know some new inexperienced people who think that stocks are too risky (since they could lose money by it), but somehow cryptocurrencies are far less risky. So far it is not clear to my why cryptos should be less risky. Well, the only reason it could be like that for them is that they don't see the risk, but only the money they missed to make lately and want to make now asap. I think it is a risky situation.
For me most arguments that is not a bubble are even not very valid.
First of all lets see the arguments again:
- market cap and small market participation
It is absolutely true that the market cap and market participation is still far away from dot.com times. But the thinking that market cap or market participation must be any similar to it it simple wrong.
3D Systems Corporation
Lets have a look on the 3D Systems Corporation stock. It can be taken as a symbol for the 3D Printer bubble, which burst in January 2014. At that time Investors have been very enthusiastic about 3D Printers since they expected high returns from it. Surely it is absolutely thinkable that we would use 3D Printers much more and make much more individual products for ourself.
Was there a high market cap? No, absolutely not. Market cap was far below 100 billions $
Has there been a high market participation? No, absolutely not. Nearly nobody knows about that bubble and only relatively few people have been invested in it - far less than at btc.
About the asset question:
Surely Bitcoin can be seen also as a currency. But at the end that doesn't change anything. In my opinion the vaste majority use Bitcoin nowadays as a speculation object and so clearly as an asset. Unfortunately I don't have any real data about it, but from what I hear from different blogs and chat rooms, only a very few people use Bitcoin really as a currency (well, maybe nowadays it got also too expensive in regard of fees for getting used as a currency).
How will it go on?
At the end the question if it is a bubble or not is not so important. In my opinion there is a high risk, that it will fall a lot. But so far we can't say when it will pop. It is absolutely thinkable that it is even going up another 50%.
As long as there aren't any top signals we have to go with the flow. Just be careful and watch market moves closely.