Is Bitcoin In a Bubble?

The value of the Bitcoin has been making record highs recently. While many love this, others are concerned that the spike is simply a bubble. We have been here before. Early on in its existence, Bitcoin soared to $30 and then crashed. Later, we hit highs over $250 and then crashed again. Now we are well over $600 and some fear that this spike too is artificial. Will the price crash yet again? Are we really in another big bubble right now?

Short-term short answer: Maybe a little bit.

Short-term long answer:

In terms of dollar value, Bitcoin is almost certainly in at least a small bubble. Let's face it, when people see something gaining value, they want it. Investors buy it up, hoping to make money by selling it later at a higher price. This is what creates a bubble. When people buy things, whether it is stocks, real estate, Bitcoin, or anything at all, simply planning to sell it later, then the value is somewhat artificial. They do not want Bitcoin for Bitcoin's sake, they want it because they like dollars, or some other government-controlled fiat currency.

Rising Price Chart

If there are enough of these investors, then the bubble is likely to burst with some degree of violence. One big investor will finally decide that he has made enough money and he will sell all or most of his investment, causing the price to drop noticeably. Other investors will see this and react. The plummeting price will spur them to realize as much of their gains as possible before the price drops even more, so they too will cash out of Bitcoin and cause the price to cascade even more. This cycle will continue until all strictly monetary investments are sold off. In short: Investors sell, price drops. Repeat as much as possible.

Because Bitcoin really is gaining value at such a significant rate, this bubble is bound to exist, but no one can really know how big it is. No one can really know how many people are investing simply to gain dollars and how many truly believe in Bitcoin, and plan on keeping it to use as a regular currency. Therefore, I believe the bubble really will burst, but no one can truly tell how much of a crash this will cause. The cryptocurrency could simply drop back to $350 and stabilize for awhile. Or, for all I know, it could sink all the way down to $20 if too many people begin to lose faith. So yes, Bitcoin is in a bit of a bubble, but no one can know how large it really is.

Long-term short answer: Absolutely not. I believe in Bitcoin.

Long-term long answer:

Bitcoin truly is revolutionary. Nothing like it has ever existed before, and in my opinion, it is bound to change the world. Even if the value did drop to $20 or less, cryptocurrency would still be useful for transacting any amount of money quickly, globally, and tax-free. It does not matter what the dollar value is because Bitcoin does not depend on or need dollars. Some people do invest in Bitcoin because they hope to gain dollars, but others plan to use Bitcoin as their everyday currency someday. That is my dream, and it may not happen as soon as we would like, but I think it has to happen eventually.

Jeff Berwick, editor-in-chief of The Dollar Vigilante and huge Bitcoin promoter recently said on Fox Business Network, "I've never actually traded Bitcoins for dollars. I actually keep all my Bitcoins." This is a very important statement. I wish I could say the same and I plan to keep as many Bitcoins as I possibly can going forward. Berwick has virtually zero faith in the dollar and I think we would do well to agree.

Think about it. The government, banks, and Federal Reserve chairmen have full control over our money. They can make more anytime they want and spend it however they like. They can tax us and steal what we already have. They can reward people and businesses they like and they can punish those they dislike. This is devastating and is bound to cause an eventual collapse. The people simply cannot survive under such manipulation and in time, we must turn away from the dollar. Enter Bitcoin. Because of the global, peer-to-peer nature of Bitcoin, the government has absolutely no control over it. As long as we never let them convince us otherwise, then the world will finally see a truly free currency.

This is why, long-term, Bitcoin cannot be in a bubble. Because the dollar and other fiat currencies are meaningless anyway. The true value of the Bitcoin does not come from the dollar, it comes from the Bitcoin itself. One Bitcoin will always be worth one Bitcoin. When cryptocurrency finally dominates our world, then it will not be Bitcoin that experiences bubbles, it will be other things whose prices are based on the Bitcoin. Investors will spend Bitcoins on other currencies and commodities hoping to gain more Bitcoins. It is probably not reasonable to expect this scenario too soon, but I believe it will come eventually. I should also mention the possibility that another, more advanced cryptocurrency could come along and replace Bitcoin. This possibility cannot be ignored, but whether it happens or not, the dollar will be overtaken by something.

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