Traders Tips
by Gerard on September 22, 2017

Is Bitcoin a Big Bubble?

We don’t often write about Bitcoin or any other cryptocurrency but today we feel that it is an important thing to do, as the opinions about this cryptocurrency have been quite controversial. Before we go on in the details, let’s simply define the bubble.

What is a Bubble?

In finance, a bubble is a rapid growth of a certain asset which is then followed by a dramatic drop in its value.

Until now, we have been being some dramatic increases in the price of bitcoin. The main question is, will it go down? And in case it will, how fast?

Short Answer

is bitcoin a bubbleWe know that most of the readers will hate us for this statement, but yes, we do feel that bitcoin (at its current rate) is a huge bubble. We, however, love the bitcoin and we hope for its best, yet it is clear in its current form it is nothing more than one of the riskiest things for investment. According to our forecasts, bitcoin is here to stay, yet at a completely different rate. Let’s examine why.

Limited Use Cases

Any currency or commodity has its value-driven by demand. Nobody really needs US Dollars unless you can actually buy something for them. Historically, most of the countries and companies have been believing in the strong economy of the States, hence they kept their savings, pricing, etc in the USD. Gold can be used in production, yet it is also a key ingredient for jewelry, which is adored by so many people. While diamonds are nearly useless, a large part of our population likes these shiny things, hence there is even some demand for them. However, what is the use cases of bitcoin?

Gambling

bitcoin gamblingYou might be surprised, but a larger share of the bitcoin transactions is actually sent to various online bitcoin casino websites. Many people love to gamble, and some of the players actually have a very high net worth. Bitcoin helps such people to keep their anonymity while they play poker, roulette, or any other game of their choice online. Besides that, in many countries, the regulation for online casinos is very severe, but unregulated bitcoin casinos can evade the licensing and, hence, offer a bigger bang for the player’s buck. So far, the popularity of bitcoin gambling has only been increasing.

Illegal transactions

There are much more marketplaces online than just Amazon or eBay. Some people prefer buying their OG Kush or a few grams of llello online than from a street dealer. The reason behind this is very simple, you get to keep your identity hidden. Besides that, you will be (most probably, we didn’t check) provided with better quality at a nicer price. However, the governments have been fighting such marketplaces for a while now and they are keen to keep black markets out of business. Besides that, with the recent introduction of Monero, a more secure way to pay for illegal things online, the popularity of Bitcoin for illegal transactions will drop.

Regular payments

There are many Bitcoin enthusiasts in this world, and most of them have tried to make the currency popular by being eager to receive or send payments in BTC for their goods and services. The thing is, there are some fees attached to a bitcoin payment and these fees make micropayments (like payments below $5) simply unattractive for buying or selling something via BTC. Technically, the bitcoin transaction is a certain file that has to be decrypted, and decrypting it costs money. If we speak of a large transaction, bitcoin can certainly be good. However, paying $5 for your coffee and then paying another $5 in fees certainly does not look that attractive.

Is there more to this?

As you can see above, regular payments are unlikely to be dominated by bitcoin. Sales of drugs, DDoS attacks, guns and other illegal things online will unlikely to happen via BTC in the near future, simply because there is a better alternative. Playing blackjack online for bitcoins is, however, more likely to stay this way. This gives us an idea that there is a practical use case for bitcoin, yet it is very limited.

bitcoin rateHowever, the current rate of bitcoin does not seem to illustrate the reality. How many people would be willing to exchange their dollars or euros to play gambling games online? Certainly many, but not too many. Besides that, we all understand that gamblers are not profitable and they will be driving the demand for BTCs, yet it does seem like the current rate of the bitcoin represents like it is the currency of the future, which it certainly is not.

Finally, most of the bitcoin investors of 2017 certainly represent High-Yield-Investment-Programs enthusiasts. They expect to enter the BTC market at the rate between $2500 and $4500 per coin and cash out at around $10,000. Will they be lucky? Some of them – certainly. Most of them – probably not.

To sum up, bitcoin is here to stay and it will certainly not go away anywhere. There will always be some demand for it, yet the current demand is mostly driven by the speculators, and this demand does not reflect an actual demand that is used for transactions. Hence, at the current rate, bitcoin represents a great bubble.

FAQs on Bitcoin Bubble

Is Bitcoin a bubble?

Yes, Bitcoin is a bubble. A lot of people consider Bitcoin a big bubble due to the simple fact that its price fluctuates a lot and investing in this kind of asset is not considered safe. Other than that, some governments are not okay with the usage of Bitcoin and cryptocurrencies in general, which makes the global use of this asset unlikely.

Is Bitcoin worth investing in?

Yes, Bitcoin is worth investing in if you love taking risks. The high value of Bitcoin means a high risk of investing at some moments. That’s why it is important for people willing to invest in it to know that this digital currency comes with both high risks and rewards. Bitcoin, on the other hand, is a worthwhile investment if you want to extend and grow your assets and can afford the risk that comes with cryptocurrencies.

By Gerard

Gerard contributes his 10 years of experience to the Forex Trading Bonus team by reviewing different brokers, outlining regulation, and reporting on the most important news in the industry. His brief stint in the Bank of England gives him the edge over many other writers to deeply analyze a policy change and come up with a distinct result that could come from it.

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