Is this really a cryptocurrency bubble?
You cannot discuss cryptocurrency with people without hearing ‘cryptocurrency bubble’ talk. Essentially, most people look at this space as a cryptocurrency bubble due to comparisons of the total cryptocurrency market cap graph to the similarly shaped graphs of famous bubbles in the past. A favourite is the ‘tulip mania’ comparison.
Are these comparisons fair?
This is a graph of the total cryptocurrency market cap for the last year. Does it look like a cryptocurrency bubble?
This is a graph showing the price change of tulips back in the day.
Back in the 1600’s, in The Netherlands, prices of some bulbs of a new and popular tulip reached extraordinary levels, before the price came crashing down. It is the first speculative bubble, and is still well known today. The incredibly fast increase in price resembles the increase of the market cap of cryptocurrency in late 2017 – leading to the thoughts of the cryptocurrency bubble. There are often also comparisons to the dot com boom.
Of course, the total market cap does appear very similar to the graph of the dot com bubble as well.
So, the market cap graph appears very similar to those of previous bubbles, and the overall market cap has decreased dramatically. Has the cryptocurrency bubble popped?
We say no it hasn’t, this is a healthy correction and future growth can be expected. The equivalence to the dot com boom and the tulip mania can actually help our case.
Before the comparisons, take a look at this.
This is the graph of the cryptocurrency total market cap from late 2013 – middle 2014. Was this a cryptocurrency bubble?
It also closely resembles the famous bubble graphs as shown. This was when the total market cap was just over $15B. So this trend has happened before in the cryptocurrency world, with a relative growth and fall similar to what is occurring now. Progression occurred between then and 2017 which caused the large run up throughout the year. This is one reason why the cryptocurrency bubble may not be what it’s thought to be. It is more of a correction rather than a cryptocurrency bubble pop.
You can’t argue that the growth was sustainable at the end of 2017 – what you can argue is that the growth was based on actual technological advancements that can revolutionise certain industries, and that tech isn’t going away. It’s only innovating and developing. Not necessarily a cryptocurrency bubble.
Now let’s start with the tulips. These prices were massively based on speculation – the tulips served no new purpose, the bulbs were just for a new kind of tulip and were very popular, so it was thought that the price could continue to grow. Until it didn’t. Everyone realised that there was nothing that special about them and the price began to fall dramatically. The fact is, these tulips were not special.
The dot com boom begins similarly; the price grows with extreme speculation on the back of the increasing growth of the internet. The difference here from the tulips is that prices recovered. If you invested back when the bubble had ‘popped’, you could be extremely wealthy today. You could have been wealthy today if you had invested before the bubble popped also.
The distinction here is that you had to have invested in the correct company.
A lot of the projects failed and lost people money. This is natural. Now this can be compared to cryptocurrency more appropriately. But does it make it a cryptocurrency bubble?
There are so many projects out there, a lot of them do similar things in slightly different ways, some of them are definitely scams, some of them may be scams, some of them are mostly pointless – either they serve no purpose or they are just cash grab forks. This does not mean it is a cryptocurrency bubble. There are amazing projects out there.
There is competition in the space. There are also, of course, useless overvalued projects in the space. The price corrections (as we are calling them) will act as a way to reduce the number of useless projects in this space. The cryptocurrency bubble may be correct, therefore, in the sense that the overall market cap was over inflated due to the vast number of overvalued projects with no use.
However, the cryptocurrency bubble does not exist in the sense it is viewed by the general public because of the amount of innovation in the space. The cryptocurrency bubble is referred to disdainfully, with the insinuation that all of the projects are scams with no use – just price speculation like the tulips. This is not the case.
There are projects that exist with partnerships with massive global corporations that want to incorporate blockchain technology into their business. Supply chain coins are a great example of this – they have a working project that is being implemented into large businesses as we speak.
There is a massive potential with this technology, and it is clear to see with the amount of talent leaving their well respected senior positions to pursue careers in this field with startups. You just have to pick the right projects with promising futures.
Not all projects are going to succeed, just as nowhere near all start-ups succeed in the business world. But the fact is that this technology is here to stay, so no, in that sense the cryptocurrency bubble does not exist. The cryptocurrency bubble is much more comparable to the dot com bubble than the tulip bubble – but even then we would argue it is not a bubble, and just a price correction at this time.
Unfortunately, only time can tell if it really is a cryptocurrency bubble. At this point in time no one knows. Don’t believe everything you hear in the media about this space – a lot of the news is extremely uninformed and doesn’t refer to anything besides Bitcoin and scam projects.
Do you think this is a cryptocurrency bubble? Has it popped?
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