What Happens if Bitcoin is a Bubble and it Bursts?
The speculation of Bitcoin being a bubble and the aftermath of a fall have been closely examined in the last month. As the price has continued to skyrocket, many believe a crash is imminent. Bitcoin has had a history of large price swings including it losing nearly all its value on multiple occasions. Many have speculated the current value, saying it is due to the skyrocketing number of users and there is no additional value to support this price.
Many people are analyzing the possible impacts of Bitcoin if it were to crash. The consensus finding is it has no major threat to causing global pandemonium. Despite this finding, Bitcoin’s current price has been compared to historical catastrophes like the dot com bubble. Bloomberg’s Stephen Gandel stated his valuation placed it 4 times more overvalued than stocks were at the height of the dot com bubble. The main difference is there were trillions of dollars on the line with the stock market compared to billions with Bitcoin.
As the cryptocurrency is decentralized, there would also be little to no impact on the value of anything outside of the cryptocurrency universe. The other major factor is investors are typically not taking on debt to be able to buy Bitcoin. This means they can financially support themselves and should be ok even if they lose a large amount of money on Bitcoin.
Other people are calling this rise in Bitcoin a “price discovery.” The main difference pointed out by Bitcoin experts, is the fact that Bitcoin is constantly evolving and being integrated into society. They argue this warrants the increase seen in the last year.
Bitcoin’s exact role in society is unknown at this time but it is being utilized more and more. This differs from the crashes in other commodities and assets because people understood what their value to society was. The challenge that arises with this argument is if these new uses and discoveries are accurately priced in.
The value of Bitcoin has grown faster than any asset ever has before but the extreme volatility makes it a nervous hold. On top of that, the climb above $10,000 has proven the unpredictable nature of the crypto, whether it be for good or bad.