Bitcoin is probably one of the biggest technologically-driven shifts in recent times. Maybe not quite as dramatic as the emergence of the internet or the printed word, but nonetheless, pretty big. The trouble is, the mania generated may have set us up for a painful fall.
The problem with Bitcoin is simple, there’s almost no precedent that’s gone before to set a clear path. We don’t exactly know what’s going to happen or when it’s going to pop, but it’s most definitely going to crash at some point.
It’s hard to predict a bubble, but once one gets underway, in real-time, it’s pretty easy to spot. The tremulous mania and spiralling value is a dead giveaway for something that’s going to come crashing down hard, and Bitcoin is a prime example.
So how’s the bubble going to pop? Is it going to be a sudden painful fall or a gradual slide? That’s the big question right now, but being able to predict what’s to come with Bitcoin and other cryptocurrencies has never been easy, even from day one.
Why the Hype?
Despite all the signs being present that Bitcoin is very much a bubble about to burst, there are still plenty of cryptocurrency academics out there who’re claiming that traditional currencies are instead the ones about to topple, and that Bitcoin is going to weather the storm. That being said, there’s a whole lot of bluster and mania surrounding Bitcoin. For whatever reason, Bitcoin has created some very devoted fans.
Scarcity is what traditionally boosts value and sales in almost any arena and cryptocurrencies play on that selling feature plenty. With Bitcoin being limited to around 21 million, they’re very much a finite resource to mine. Once they’re gone, they’re gone. That’s played no small part in its sudden rise in value, and current unstable position.
The Real Problems
Lack of real, intrinsic value is one of the biggest factors causing worry when it comes to the impending crash of Bitcoin. There’s no sales or revenue to prop up that value and keep it moving smoothly in a logical, healthy pattern, its unpredictable and often sudden shifts are a cause for concern.
All cryptocurrencies are worryingly ambiguous too. Robert Shiller, who won the 2013 Nobel Prize for assessing asset prices said that Bitcoin’s value is “exceptionally ambiguous”. If even he thinks that, where does that leave the millions invested into it?
That ambiguity, combined with the rampant confidence, mania and fervour invested by thousands at this point is a pretty potent petri dish when it comes to creating the perfect unstable bubble, and we’ve reached a point where that bubble could pop overnight, or facilitate a very sudden crash. It’s hard to predict, but it’s not stable.
New Problems on the Horizon
Wall Street is always going to jump on a new product that they can sell to increase commissions and fees, and cryptocurrency fits perfectly into that role. Fund fees are lower than they’ve ever been, so they stand to make a whole lot from cryptocurrency as a vehicle.
That sounds like a good thing when it comes to stability and strength in numbers, but if anything it’s going to overbalance and froth up the Bitcoin bubble, you’re going to have lots of people jumping on board. Which, in the end, is just more people who stand to lose a lot when it all goes wrong. This systematic overloading could see a sudden tail-spin and loss of confidence.
One element rapidly dragging cryptocurrencies closer to the precipice is government crackdowns. Bitcoin dropped over $1,000 in one hour over fears about escalating crackdowns. As more and more governments and agencies like China and South Korea attempt to discourage trading, and even outright ban it. That’s definitely going to put a twist in the tail of the previously rapidly growing Bitcoin.
Although, it could potentially slow it down, and cause it to start to slowly tail off in value, dodging the sudden, painful crash that many see as inevitable. In that way, this move could have worked out, but many see it as unnecessary meddling on the parts of the governments. It didn’t just hit Bitcoin either, with other currencies, such as Ethereum taking major hits, some losing up to a fifth of their value.
Post-Burst Innovation and Development
Once the bubble does burst and the craziness dies down a little bit, we’re going to be seeing some real innovations, especially as other coins, like Ethereum, begin to reach their true potential in terms of real-life usefulness.
Cryptocurrencies were originally developed and designed to innovate a currency system that’s seen little in the way of sweeping changes over the last decades. Conceptually, believers talk about how cryptocurrency democratises money, taking control out of the hands of the bank cartels. And it does do that, but the cost is stability.
What we’re going to see is cryptocurrencies moving more and more into the real world. Right now, as of February, 2018, there are over 11,600 venues worldwide that accept Bitcoin payments, and that’s only set to keep growing, as well as all the online stores accepting cryptocurrencies.
The net effect of the bubble bursting is going to be a shocking, but positive one, with Bitcoin value tanking from its once near $20k value, but that’ll just leave a void for other cryptocurrencies to rush into, and more, to achieve their actual purpose of becoming useful, widespread and innovative in the world.
In the end, all bubbles burst, whether that’s sudden and expensive, or gradual and predictable. When it comes to cryptocurrencies, like Bitcoin, they’ve made such a huge impact on society as a whole that it only stands to reason that when the bubble finally goes pop, we’re going to see some real change and innovations in the vacuum left behind
Author: Vladimir Smerkis, co-founder and managing partner of Tokenbox, unique ecosystem that combines cryptocurrency funds under the control of professional portfolio managers and traders on the one hand, and investors on the other.
Tokenbox is a unique ecosystem that combines cryptocurrency funds under the control of professional portfolio managers and traders on the one hand, and investors on the other. Newly developed trading terminal, multicurrency wallet, mandatory KYC and AML procedures are among Tokenbox main advantages.