What’s Behind The Bitcoin Bubble and Bitcoin Crash?
0 on What’s Behind The Bitcoin Bubble and Bitcoin Crash?
If you’ve followed the news closely over the past few years, you’d have heard the word bitcoin a few times to get you curious. Don’t be surprised that everyone is talking about it, after all, bitcoin is the buzzword in today’s internet financing. Bitcoin is a digital currency that was invented for anonymous online payment. The currency was invented in 2009 and has since then grown to become a force in the world of online financing. After gaining wide acceptability over the past few years, people are beginning to believe that bitcoin and indeed other cryptocurrencies may be the future of financing, especially considering all the benefits it promises.
2017 was the peak of the currency’s popularity, as we saw the currency hit an astonishing $20,000 per bitcoin. It became a serious wave until 2019 when again, the value of the online currency suffered a massive decline. You probably heard about the boom and subsequent decline in value and you’re probably wondering how it’s possible and why it happened. Don’t worry, we’ve dedicated the next few paragraphs to explain the bitcoin bubble, its explosion, and eventual crash.
To fully understand the bitcoin bubble and the eventual cycle of its value, we will draw instances from the traditional financial system that you’re most probably used to. Like currencies, bitcoin was designed to be a means of value exchange. Without its symbolic value, bitcoins like paper money will not have any real value. What we are trying to say is that it is its purchasing power that defines its value. Normally, a central authority takes charge of traditional currencies to keep it scarce using artificial measures. There are a lot of other reasons why a central authority has to take charge of traditional currencies, one of which is to prevent counterfeit money.
However, the last few years have seen money become more virtual. Salaries are paid and spent over the internet. This trend has made it increasingly difficult to monitor financial crimes, hence the need for a central authority to monitor and place restrictions on transactions. This makes it obvious that paper money cannot function properly without a central authority always keeping watch. This is where bitcoin comes into the mix. The online coins work in a special way that keeps circulation limited, and prevents counterfeit, without the need for a central authority.
A few years ago, people began to accept bitcoins for money, giving it value. As people began to accept bitcoins more for their products and services, its value began to skyrocket. With the trend continuing like this, people began to expect a rise in the value of bitcoin, hence buying to store, leading to more buyers and fewer sellers. Naturally, this inflated the value of bitcoin to an all-time high. Experts refer to this as speculation. It took only 10 months for the bitcoin to rise to $20,000. The question, however, is what part of this incredible rise we can attribute to the real market, and what part of it is due to speculation?
Like many other speculative values, bitcoin saw a sharp decline in the first months of 2018. Having stayed at the top of its game in 2017, the government of powerful nations became scared that the digital currency will override their local currencies. What ensued was a massive ban of the currency across many nations. Furthermore, most government institutions employed rumor strategy to warn people of an impending crash in value. Users became scared and began to sell off their bitcoins quickly, leading to far more sellers than buyers. It didn’t take long for the value of bitcoin to crash from $20,000 to $4,000.
Although it has remained quite stable since mid-may, experts have predicted that it will rise again in value in coming years. People are watching the trend, ready to jump in, in case a sign of possible rise is seen.