Why The Crypto “Bubble Theory” is a Bust

A variety of analysts, banks and skeptics have all at one point claimed (or continue to claim) that Bitcoin is a bubble that could burst at any moment, mostly due to its rapid increase in value.

Now, to be fair, it took the cryptocurrency exactly 1,789 days to go from $0 USD to $1,000 USD, and just 13 for it to rise from $6,000 USD to $7,000 USD — that’s pretty darn quick. To some these incidents look like warning signs of a bubble about to burst, while others realize this is more likely one of many ‘bumps’ in the road that all other currencies, technologies, and industries face in the long-term.

We are not saying Bitcoin is untouchable. In 2013 a bubble burst within Bitcoin when the demand rose so quickly that the market could not support it, with the value plunging from $1,300 USD to $200 USD. Yet quickly after the prices rose again, much like the peaks and valleys you see in the value of other currencies.

However, when we shift our thinking from the short-term, to the long-term potential that Bitcoin has, we can have a much more balanced view of the industry-changing currency.

Let’s look at an example.

We’re using Tesla because like Bitcoin, it has been considered a bubble almost since its inception, and it is an industry-changing technology that has grown its own market and has a consumer base consisting of ten of millions.

Even up until this year there were experts and analysts still predicting that Tesla was a bubble due to the fact that from 2013 to 2017 Tesla shares increased from about $20 to $302 per share. Yet, in between those years, there have been many minor and major corrections, including when the stocks were worth about $240 each in December 2015 and dropped to about $150 by February 2016. However, when you look at Tesla stocks over time you see that they have recovered and continue to run a sustainable business.

See any similarities?

Comparison of TSLA (Blue) with Bitcoin (Green)

Bitcoin’s current rise looks quite similar to Tesla’s first major increase in value, with many small ‘bubbles’ along the way.

But, Bitcoin is different too

While we do expect Bitcoin to experience corrections, peaks and valleys like anything else, we need to also look at how it differs from other markets.

First off it is not a company that can lose profitability, and it’s not increasing because of marketplace scams or fraud.

Second it is not an industry where banks or governments play a role in the marketplace value. Because Bitcoin supply is limited, the more funds that are invested into Bitcoin, the more it increases in value. With Bitcoin we see basic supply and demand at work — the supply is scarce and the demand is high, continuing to drive value up.

Our final words

If Bitcoin were a bubble, it would be the biggest bubble that we have ever witnessed, aside from the gold bubble that lasted about 6,000 years. Sounds pretty unlikely.

We have a feeling Bitcoin, and all of the technology that comes with it in the cryptocurrency marketplace is just getting started.



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