Bitcoin is no stranger to volatility and doubt, but does that signify the cryptocurrency is in a bubble? There’s a lot of evidence that points to the contrary. It’s understandable that investors may have concerns and debates about a potential Bitcoin bubble. If it bursts, the crypto’s value becomes insignificant. Traders may lose their investments entirely.
Before you decide to begin (or continue) using Bitcoin, you should make sure you understand what’s in its future. In this article, we’ll explore the substantial evidence that differs Bitcoin from other bubbles. The information discussed below provides traders with a well-reasoned and balanced argument against the Bitcoin bubble.
Bitcoin was first introduced in 2009. The Cryptocurrency experienced market volatility throughout its history. However, Bitcoin has always bounced back from any significant price drops. This includes long periods of bear market behavior, with some price declines lasting over nine months. Bitcoin has even gone through severe price crashes, including its latest crash in November 2022. However, its price has always evened out afterward and even climbed to new heights once again.
When it launched, it had a value of $0, which climbed to $1 by April 2011. Just three months after that, the crypto’s price shot up by 2,960% to $29.60. By November of the same year, its price declined to a mere $2.05. In 2013, Bitcoin experienced some strong gains, trading at $123 by October.
This is just a snapshot of the many price fluctuations and recoveries Bitcoin has experienced. Currently, Bitcoin is trading at around $25,000. Bitcoin’s resilience in overcoming a wide range of challenging market conditions is clear. It survived the 2020 pandemic and the 2022 crash of FTX, a major crypto exchange. BTC continued to gain in value even after major downturns; it doesn’t have the fragility of a crypto bubble.
Bitcoin has come a long way since its launch. It went from an obscure digital currency to mainstream crypto. Globally, 219 million people use Bitcoin as a payment method. Even more encouraging, Bitcoin is seen and treated as a legitimate asset by institutional investors, corporations, and governments. In the US, BTC and other cryptocurrencies are taxed - just like any other income.
Major companies like Shopify, Ralph Lauren, Microsoft, and even Starbucks use Bitcoin in their financial strategies. These organisations are crucial in gaining wider recognition of Bitcoin’s usefulness. Bitcoin is the most popular crypto, with the total number of crypto users currently at 420 million. With the crypto market, in general, growing at around 4%, we can only expect more people to join its user base.
Bitcoin’s key attributes, including its decentralized nature and fixed supply, make it an especially attractive asset. Only 21 million coins can exist, and miners have already set 19 million of that supply in circulation. Bitcoin’s expensive mining fees, which currently back its inherent value, will disappear once it reaches its cap.
The market price will then reflect the market’s new supply and demand. Demand will increase for Bitcoin, as it remains the most popular crypto and gains more users. Its supply, however, will remain at a maximum of 21 million. Bitcoin’s mining system is also different from other cryptos. The number of new Bitcoins minted per block mined is halved around every four years. The next halving will occur in 2024.
It’s also important to remember that users have already lost around 4 million Bitcoins due to losing their private keys. This makes the supply that more scarce. Bitcoin’s core features lay a strong foundation for inherent value and scarcity in the face of significant demand. These features differentiate it from other popular cryptocurrencies. They’re also not seen in traditional speculative bubbles.
Some investors have concerns about Bitcoin’s scalability. At the time of its launch, its creators were more focused on Bitcoin’s usability as a peer-to-peer payment system. It has no intermediaries, allowing for incredibly secure and easy transactions. As it grew, Bitcoin became users became more aware of the crypto trilemma. It’s difficult to develop a system that balances scalability, decentralization, and security.
However, Bitcoin is facing the challenge head-on with solutions like the Lightning Network. As Bitcoin’s blockchain grows in nodes, it carries more transaction data. To validate transactions, every node has to execute a computational task. The more nodes, the harder this becomes. The Lighting Network is a second layer of the blockchain.
The network forges channels between two parties, allowing them to send unlimited transactions. This occurs independently, instead of on the main blockchain. Payment channels are then linked together, lightening the load on the main blockchain’s nodes. Other supportive technological solutions for scalability are also being explored.
Sharding is one of them. This process involves splitting the data into smaller sets, or shards. The blockchain can process these more manageable datasets parallel to each other. With many shards processed simultaneously, the validation process is made faster without compromising Bitcoin’s decentralization.
Major financial institutions, from JP Morgan to Goldman Sachs, are adopting Bitcoin into their strategies. Interest has spread even to venture capital firms, who want to explore tokenization. This is when real-world assets, like gold or precious gems, are minted on the blockchain. These digital tokens represent ownership of assets, which third parties can look after in secure locations. While still cautious, they want to increase involvement and investments in Bitcoin. Even the US government owns Bitcoin - 241,000 of them!
Bitcoin is also well-regulated, especially in the US. On a state level, it’s regulated by local parties. On a federal level, it’s regulated by the SEC, FinCEN, and the CTFC. Bitcoin and other digital assets fall under their jurisdiction, though global regulations are also pertinent. Countries like Switzerland and the UK implement the FATF Travel Rule. This prevents money laundering and other criminal activities around the globe by sharing data on institutions engaging in virtual assets.
Amidst global economic challenges, including high inflation rates and subpar growth, Bitcoin acts as a hedge against financial stress. While the cryptocurrency has experienced its fair share of volatility, hedging is a long game. Bitcoin’s overall historical data points to its value increasing with time.
Many use Bitcoin as a store of value - opening a new digital world of opportunity. Most stores of value are physical assets, like gold, bonds, or land. The Bitcoin in your secure digital wallet is available from any place with an Internet connection, at any time. With its influence only growing, Bitcoin makes for a great potential hedge against economic uncertainty. If it were a bubble, investors would avoid using it to store their money or to back their other assets.
Suggested reading: What is a Store of Value? The Ultimate Guide
Bitcoin has many attributes that solidify its value, usefulness, and potential for future growth. The information provided in this article showcases how different Bitcoin is from traditional bubbles. Its decentralized nature, secure transactions, and scalability are backed by its millions of users. Bitcoin’s ability to overcome major financial events and challenges proves its tenacity in the market. The digital asset is also growing as a global mainstream payment method, supported by entire governments and major institutions.
Traders can easily stack this evidence, creating a strong argument against the Bitcoin bubble. It’s important to still consider Bitcoin’s inherent risks, such as its market volatility. Before coming to a definite conclusion, conduct your own research and consider others’ perspectives on the topic.