Bitcoin’s resiliency will show it’s not a bubble
By definition, bitcoin’s rapid rise and decline appears to be a bubble. 2017 saw the rapid escalation in value; 2018 saw a massive sell-off. It would seem the bubble criteria have been satisfied. But there are two arguments against this.
First, market volatility is the name of the game right now. Heavy sell-offs and falling value are not exclusive to bitcoin. The ongoing trade dispute between the U.S. and China, in addition to chaotic Brexit negotiations in the U.K. and a changing of the guard in Germany, have all led to economic uncertainty around the globe.
In early December, investor concerns led to a stock nosedive, with the Dow erasing much of its annual gains. In response, many investors have begun to diversify their portfolios to protect against the instability. The drop in bitcoin value could be attributed, not to the burst of a bubble, but to the larger market trend.
And second, compared to bitcoin’s original value, early adopters have still seen an incredible return on their initial investment. When the cryptocurrency first launched in early 2009, it was worth virtually nothing. The price of a single coin only permanently cleared $1,000 in March 2017. At its current price, it still holds more value than it has for the bulk of its existence. Thus, announcing bitcoin’s demise seems a bit premature.
In late November, Allianz's chief economic adviser, Mohamed El-Erian, predicted cryptocurrencies would survive the current sell-off and remain a powerful commodity. As proof, he points to the number of major financial institutions that are getting involved with bitcoin. For instance, in March, Barclays struck a deal with Coinbase to begin accepting bitcoin payments in the U.K. If the bubble had truly burst, major financial institutions would not be willing to take risks.
For individual investors, the talk of a cryptocurrency bubble can be worrisome. For long-term bitcoin believers, the steep drop in value most likely seemed devastating. But bitcoin has proved resilient time and time again, and it will continue to do so. During uncertain economic times, the best strategy is to protect your coins.
Only time will tell, but history shows that bitcoin will survive. Instead of speculating about its end, take steps to secure your coins for its future.