link1470 link1471 link1472 link1473 link1474 link1475 link1476 link1477 link1478 link1479 link1480 link1481 link1482 link1483 link1484 link1485 link1486 link1487 link1488 link1489 link1490 link1491 link1492 link1493 link1494 link1495 link1496 link1497 link1498 link1499 link1500 link1501 link1502 link1503 link1504 link1505 link1506 link1507 link1508 link1509 link1510 link1511 link1512 link1513 link1514 link1515 link1516 link1517 link1518 link1519 link1520 link1521 link1522 link1523 link1524 link1525 link1526 link1527 link1528 link1529 link1530 link1531 link1532 link1533 link1534 link1535 link1536 link1537 link1538 link1539 link1540 link1541 link1542 link1543 link1544 link1545 link1546 link1547 link1548 link1549 link1550 link1551 link1552 link1553 link1554 link1555 link1556 link1557 link1558 link1559 link1560 link1561 link1562 link1563 link1564 link1565 link1566 link1567 link1568 link1569 link1570 link1571 link1572 link1573 link1574 link1575 link1576 link1577 link1578 link1579 link1580 link1581 link1582 link1583 link1584 link1585 link1586 link1587 link1588 link1589 link1590 link1591 link1592 link1593 link1594 link1595 link1596 link1597 link1598 link1599 link1600 link1601 link1602 link1603 link1604 link1605 link1606 link1607 link1608 link1609 link1610 link1611 link1612 link1613 link1614 link1615 link1616

Tag: bitcoin buble

Could Bitcoin’s Bubble Lead to Long Crypto Winter?

Could Bitcoin’s Bubble Lead to Long Crypto Winter?

In the mad mania for cryptocurrencies, there are some dissenting voices from old timers, calling this irrational exuberance. Could a crypto winter be in the offing?

Eerie similarities to 2013

A year after the block reward halving, with media buzzing about Bitcoin, and a multifold increase in price — this is not just a description of 2017 but also perfectly fits 2013. After the block reward halving in 2012, the price of Bitcoin shot up during the following year. The price increased from around $13 at the starting of 2013 to a peak of over $1200.

The reasons for this jump are manifold (including the bots — Willie and Markus, which bought Bitcoins on Mt. Gox), but the almost 100 fold increase in price was unprecedented. The 500% increase in price of Bitcoin in 2017 appears tame in comparison. Of course, the base effect does make such 100 fold increases in price almost impossible now, with Bitcoin's market capitalization crossing $100 Bn.

This time Is different

When comparisons to 2013 are made, the common refrain is “this time is different.” There is increased Bitcoin adoption, there is no Mt. Gox, the ecosystem is better developed, institutional money is coming in and so on. If time has taught us one thing, it is that history usually repeats itself. Or rather, as Mark Twain said, “History doesn’t repeat itself, but it often rhymes.”

A 500% increase in price in just a year is the sign of a bubble building up. There has been no catalyst driving the growth and a fear-of-missing-out mentality seems to be at play. Newbies are being attracted to Bitcoin (and ICOs) driven by the promise of massive gains. They believe that "this time is different."

House money at play

While traditional economists believe that the market is made up of rational investors, behavioural economists believe otherwise. People who have made windfall profits take higher risks than they normally would. This is similar to gamblers taking higher risks after winning, believing that they are playing with "house money."

With Bitcoin's rapid rise in price this year, a lot of investors have seen their portfolio appreciate rapidly in price. Rather than evaluating whether Bitcoin is overvalued and it is time to sell, these investors may be willing to hold longer because of their windfall profits.

2013 ended badly

The crash of 2013 was the first long term downtrend in Bitcoin's price. Although there were previous crashes with higher percentage drops (from $32 to $2), this was the first time that the price didn't recover quickly. Bitcoin's price had risen during every calendar year until 2013 and people believed the price would recover in 2014.

This was not to be. It would take more than three years for the price to cross the $1200 levels attained in November 2013. This year has been extremely strong so far, but a crash would be terribly painful. A lot of recent cryptocurrency converts could get hurt and it could take even longer to recover this time.

 

Author: Jacob J

 

Posted by David Ogden Entrepreneur
David Ogden Cryptocurrency Entrepreneur

Alan Zibluk Markethive Founding Member