The rumors about Bitcoin being the biggest bubble ever have been around for a while. Perhaps it all started with Warren Buffet calling this cryptocurrency a rat poison squared. However, allusions and metaphors have only started there. From the recent interview, Bitcoin has been compared to anything from a beast to the ancient Greek god Prometheus.
So is Bitcoin really a bubble or the talks about the next big bubble are only the effect of the fake news being spilled from the unreliable news sites?
Let’s gather some facts and expert opinions and try to come to a reasonable conclusion.
Facts and data
Apparently, the last year has proved that Bitcoin has the right to be in line at least with the other financial asset classes like bonds and stocks. The investor Jonathan Ruffer called Bitcoin a unique emerging store of value. Indeed, everyone including the seasoned financial experts is still questioning the intrinsic value of a Bitcoin. Since it’s just a computer code, essentially, it has no value unlike precious metals like gold, for example. But its unique architecture can make this thing rise from zero to $20,000 and from $4,000 all the way to $57,000 per unit in a matter of a few months. Truth is, the phenomenon of Bitcoin is still poorly researched and most investors rely on its speculative value, which they are trying to fuel at all means.
In the report made by Man Group, the pool of researchers has come to a conclusion that Bitcoin is like Prometheus – because it grows its price just like the ancient god grew his liver after it had been destroyed. That means that they imply that after each bubble Bitcoin has an ability to rejuvenate itself and they see it as a cyclical and stable pattern.
Financial experts state that stocks and bonds are more likely to become the next big bubble rather than Bitcoin. In a survey, 83% of respondents gave these assets a bubble rating of 7 out of 10 and higher.
Along with that, traditional financial institutions keep tiptoeing towards cryptocurrency. Media sources talk about Goldman Sachs considering creating a crypto custodial service. Meanwhile, Anchorage, the institutional digital asset platform, has obtained conditional approval from OCC for becoming the first digital asset bank in the USA. Also, the users of the international cryptocurrency exchange CEX.IO, including the Canadian CEX.IO, already enjoy a range of financial services which previously had been possible only through conventional banks. And as a reverse trend, Gemini Trust ruled by the Winklevoss brothers considers going public.
Bitcoin bubbles were programmed?
Some researchers point out the fact that comments about Bitcoin being a bubble are made with a lack of perspective on what this term really means. The bubble happens when an asset is overpriced in relation to its intrinsic value. Usually, a bubble happens just once.
But if we look at Bitcoin price swings, there were at least three of them as of the beginning of 2021. Similar bull runs to what we’ve been experiencing lately, have also occurred in 2017 and another time in 2013. All of them have correlated in time with Bitcoin halving. As a result, researchers began questioning whether the Bitcoin rises and falls are programmed and occur as a natural consequence of its code operation.
So, instead of viewing Bitcoin as a bubble, many investors begin to view it as a new, albeit misunderstood, economy that establishes itself in the global monetary system slowly but surely. The above mentioned research provided by Man Group further states that the Bitcoin’s volatility is part of its price discovery process and that this cryptocurrency is moving towards becoming a legitimate new asset class.
It looks like the software conditions make for the reduction of BTC supply with every 4 years cycle. Because the number of miners increases, the difficulty of minting increases as well and we are moving faster towards extracting all the possible Bitcoins out of 21 million total supply. So, naturally, every year we will get fewer and fewer Bitcoins. Experts say that large institutional investors like Tesla and MicroStrategy are considering the scarce and cyclical patterns of Bitcoin for the long run. All these factors imply the stable and predictable growth of Bitcoin’s value against the fiat currencies which also inflate as a result of economic crises.
If you’ve been watching the historical price of Bitcoin, you might have noticed that its boom-and-bust cycles are happening every four years and have a repeatable pattern. The price swings at its new all-time-high, then it drops but never below the previous year’s price. All these patterns have been the same in these four-year cycles which grant Bitcoin even more stability than the US dollar. This concept opposes the notion that Bitcoin’s price is only driven by news hype and irrational investors. In fact, Bloomberg mentions that the recent recovery to a new all-time-high happened without anyone even talking about it (in the media).
So, we can conclude that Bitcoin is not like any asset class that we’ve seen before. It’s not a government-issued currency, not a stock or a bond. And it behaves differently. Some researchers say that Bitcoin should be examined as a scientific invention, others relate it to an emerging financial asset class. But the only thing that they all agree about is this. Bitcoin is not a bubble and it is slowly yet surely transforming from a futuristic concept to a part of our normal economy.