If you’ve been involved in the crypto markets recently you will have witnessed the new found highs that Bitcoin has ascended to. The incredible bull run of last year appears to have spilled into the new year and there’s no stopping it now. After the last bull run of similar (however lower) proportions, many likened the cryptocurrency to the internet bubble of the late 1990s. This time, it’s different. Let’s uncover why Bitcoin is not a bubble.
What Is A Bubble?
In economics, the term bubble is used to describe a cycle in which an asset experiences a rapid increase in value, followed shortly by a steep decline. This powerful surge is often caused by exuberant market behavior and typically sends the asset’s price above its intrinsic value.
American economist Hyman P. Minsky has categorized the five stages of a basic pattern of a bubble, shedding light on when and how a bubble might develop. These include:
- Displacement. When investors first start noticing an asset.
- Boom. When the price starts to rise and more and more investors jump in.
- Euphoria. When asset price skyrockets and investor caution is a thing of the past.
- Profit-Taking. Sell off of assets. Few will recognise the warning signs, and once the bubble bursts the price is not going back up again.
- Panic. Prices drop (often sharply) and investors look to liquidate their assets at any price, often losing money along the way.
Investors will agree that during the 2017 Bitcoin price boom there were definite parallels to an economic bubble. The bull run started in September when Bitcoin was trading at $3,200 and hit its peak at $19,896 just three months later. By early February it had dropped to $6,800. The market witnessed an influx of retail investors looking for a “get rich quick” scheme and the market collapsed.
This bull run, however, things are a little different. Firstly, the market is being dominated by large corporations moving their reserves into crypto. Secondly, the price has corrected itself, but not dropped too significantly. The Bitcoin market is more mature this time around, as are its investors.
4 Reasons For The Recent Bullish Price Activity
The market is likely to experience volatility over the next few months as it breaks into a new price bracket and stabilizes. What makes Bitcoin go up? Here are a few prominent reasons as to why the cryptocurrency is likely to continue progressing:
- The widespread institutional investment currently presenting itself is likely to influence two main areas: a wave of institutional and retail investors following suit, and the ease at which investors can onboard and manage their crypto investments. The simpler and more mainstream it becomes, the more people will enter the market.
- Many of the other top 10 (and beyond) cryptocurrencies are maturing and garnering a new level of respect and use cases both within and outside of the cryptocurrency world. This in turn drives awareness around the crypto industry and typically increases adoption rates across the board.
- As fiat currencies have become more unstable following the pandemic, investors are looking to cryptocurrencies as a safe haven for “insurance” funds, particularly Bitcoin (more on this below).
- The final reason listed here is the fact that governments, distinctly the SEC (the U.S. Securities and Exchange Commission), are increasing regulation structures and imposing more stringent KYC verifications. The more controlled the industry, the more “on the fence” investors will enter.
The Pandemic And Bitcoin’s Latest Bull Run
While these factors are driving the price up, several other factors are contributing to Bitcoin’s, and other cryptocurrencies’, widespread adoption. Let’s take a look at the pandemic. As more governments pour money into their economies through printing new cash, not only does it increase inflation but it decreases investor confidence. The pandemic saw many investors pulling their money from traditional stocks and instead investing it into Bitcoin, gold, and digital focused stock like Apple, Zoom, Amazon and PayPal.
The pandemic also stirred up a new desire, one outside of the cryptocurrency industry, for digital money. Contactless payments and online shopping levels soared, and cryptocurrencies presented an easy and convenient way of paying. Further proved by the bold move PayPal took when they announced that users would now be able to buy Bitcoin, Ethereum, Litecoin and Bitcoin Cash. During the course of 2021 users will be able to pay for goods using these cryptocurrencies. For a company operating in 202 different markets with 305 million active users to endorse crypto payments, that’s a giant step forward for the crypto industry.
Why Bitcoin Is Not A Bubble
We’ve covered what is a bubble, we’ve covered what makes Bitcoin go up, and we’ve looked at the way Bitcoin has integrated neatly into our post-pandemic lives. If you’re looking to get your hands on Bitcoin, start with as little as $20 and easily buy Bitcoin and other cryptocurrencies using a wide range of payment options, including bank transfer, credit or debit card at Oobit.com.