Bubbles form when asset prices rise beyond what economic fundamentals can justify. The price of bitcoin has increased more than 400% this year and is now trading above $11,000. Bitcoin’s use as a currency and as a store of value dwarfs the volume and size of its use as an investment vehicle.
Bitcoin’s market cap is over $160 billion. Still small potatoes next to Apple’s almost 1 trillion-dollar market cap, and yet bitcoin’s trading volume is only about one-tenth that of Apple, which suggests that there may still be room for significant future growth in value without creating a bubble. Bitcoin’s utility value lies somewhere between that of gold and that of Apple.
At BestBitcoinExchange, you can get up-to-date news on bitcoins and other cryptocurrencies. Listed below are five reasons why bitcoin is not considered a bubble.
- Bitcoin’s Price is Not Too High
- The Cryptocurrency Market is Still Small
- Mining Bitcoin is an Investment in Itself
- The Number of People Using Bitcoin is Growing
- The Financial Institutions Involved with Bitcoin Know its Potential
Bitcoin’s Price is Not Too High
Bitcoin is the first currency to be price limited–meaning that there is a finite amount of Bitcoins out in the world, so unlike other currencies, there will never be more than 21 million Bitcoins. This is what sets Bitcoin apart from all other currencies.
The number one reason for high valuations on cryptocurrency projects, such as Bitcoin and Ethereum, is the potential for innovation and disruption they bring with them.
Furthermore, because cryptocurrencies can reach anyone globally without borders or any fees associated with trading them, they can allow transactions to happen at fractions of what it costs to transfer any other currency internationally. This means that they can be used for day-to-day transactions and for larger purchases.
The cryptocurrency world is still in its infancy, and while there has been a lot of skepticism surrounding it, an unprecedented amount of money is pouring into the space–this is a sign that there’s enough demand to see this through.
The Cryptocurrency Market is Still Small
Cryptocurrency markets are significantly smaller compared to global markets such as the NYSE, so they aren’t “too big to fail” or even “too big to fall.” The cryptocurrency market has grown over 10 times its size last year, and so far this year, it’s grown 16 times.
In an article published in Forbes, Tyler Gallagher, CEO, and founder of Regal Assets, mentioned that Bitcoin and the cryptocurrency market as a whole have gone through numerous periods of sudden popularity and, indeed, media frenzy before hitting back down to reality.
Mining Bitcoin is an Investment in Itself
Mining for Bitcoin creates an incentive for people to support the network and be a part of the ecosystem. People who mine for Bitcoin are doing so not necessarily because they want to hold onto their coins, but because they believe the price of Bitcoin will rise significantly over time and make them a profit.
According to Euny Hong of Investopedia, “Even though cryptocurrency mining is painstaking, costly, and only sporadically rewarding, it has a magnetic appeal for many investors interested in cryptocurrency because miners are rewarded for their work with crypto tokens.
Bitcoin’s price is directly tied to its utility, that is, what can be done with it. Therefore, as more people start using Bitcoin and the value of the currency increases, demand for it will continue to rise.
The Number of People Using Bitcoin is Growing
While the number of users for cryptocurrency projects has not always been vast, they have increased quickly over time due to how powerful these systems are becoming.
The market cap for cryptocurrencies has increased by 1,000% since 2016 (when it was at $17 billion), and predictions say that they could reach as much as $10 trillion in value by 2025.
Although we’ve seen a sharp drop in the price of Bitcoin and other cryptocurrencies recently, we need to realize that this is normal. If we look at other industries such as oil and stocks, we can see that there are familiar boom and bust cycles. Any technology industry, especially at this stage in its infancy, will be subject to growth’s natural ups and downs.
“Even though the numbers keep increasing, people from Asia, South America, and Africa are much more likely to acquire or use cryptocurrency than those in Europe, North America or Australia.”
The Financial Institutions Involved with Bitcoin Know its Potential
When you have big players such as JPMorgan Chase & Co., Goldman Sachs Group Inc., etc., getting involved with cryptocurrency projects such as Bitcoin, it’s a sign that they recognize the potential of these types of technologies.
The value of cryptocurrencies will likely increase exponentially in the future. One of the most significant benefits of using them over traditional currencies is that they can be used anywhere in the world almost instantaneously.
Bitcoin has been called a bubble by some people, but when you look at its fundamentals, you’ll understand why there’s not a possibility of it being a bubble. Like any other asset class or currency, it’s not going to last forever–the price of Bitcoin is going to go up and down over time.
The important point here is to take a step back and analyze what could happen in cryptocurrency in the future based on fundamentals rather than emotional decisions based on short-term emotions.