Is the Bitcoin Bubble About to Burst? Find Out If You Should Invest

bitcoin bubble

Bitcoin prices dipped below $12,000 this morning, according to cryptocurrency exchange Coinbase.

Earlier this week, Bitcoin had a brush with $20,000, spurring excitement among investors. Now there’s talk that the bitcoin bubble is about to burst.

Even in just the last 24 hours, the price of Bitcoin has dropped dramatically. The Trading View chart below illustrates the volatility of Bitcoin prices since late last night and earlier this morning.

bitcoin crash

Image credit: Trading View

So, what’s next for Bitcoin and other cryptocurrencies? We’ll take a look at the Bitcoin bubble and what to expect going forward.

Why did Bitcoin crash?

With Bitcoin — and other cryptocurrencies — increasing in value so quickly, some investors saw the writing on the wall.

Gizmodo reports that some of the so-called cryptocurrency “whales” (those who own large amounts of bitcoins or other cryptocurrencies) have been cashing out of their positions. Once some of the whales start cashing in on recent gains, it’s only a matter of time until others follow suit.

In fact, Coinbase, one of the largest cryptocurrency marketplaces, suspended trading earlier today in response to the high demand for transactions. Coinbase stated, “Due to today’s high traffic, buys and sells may be intermittently offline. We’re working on restoring full availability as soon as possible.”

Big cryptocurrency players aren’t the only reasons for the Bitcoin crash, however.

Gizmodo points out that bitcoins are used as a way to buy into other cryptocurrencies, sometimes called altcoins. Some of the altcoin exchanges, like Bittrex and Binance, only accept cryptocurrencies. Traders buy bitcoins, then use those bitcoins to buy other altcoins, sending the price of Bitcoin lower as it is sold in favor of other coins.

The interest in using other cryptocurrencies such as Litecoin could change the way the altcoin landscape operates going forward, contributing to the Bitcoin bubble scare. Ashe Whitener, a cryptocurrency enthusiast, recently stopped using Bitcoin as a medium of exchange.

“Transaction prices are so high now that I don’t use it that way,” Whitener said. “I see it as a crypto-commodity. I still own it a store of value, but I’ve diversified into other coins that have better tech, and that are faster, more reliable, and cheaper for my business transactions.”

Another contributing factor to this week’s loss in bitcoin value is the infighting between insiders pushing Bitcoin Cash, a fork off the original Bitcoin platform, according to Fortune. Rumors of insider trading and other issues related to the fight between proponents of Bitcoin Cash and Bitcoin likely played a role in this week’s dramatic drop.

Bitcoin Cash, with its faster transaction times and larger blocks, saw a spike in price just ahead of its introduction on Coinbase as altcoin traders dumped their bitcoins in favor of the newer version.

Is this a Bitcoin bubble burst or a correction?

Not everyone thinks the recent pullback is a Bitcoin bubble burst. Whitener sees it as a correction — and something to be desired.

“Every healthy bull market pulls back about 50 percent in a correction,” Whitener explained. “I wouldn’t be surprised to see bitcoin prices head a little below $10,000.”

Whitener sees the bitcoin price stabilizing after going through growing pains.

“This is common with markets in general, and it’s certainly common with new asset classes, and cryptocurrency is definitely a new asset class,” said Whitener.

Skeptics, like Nobel economics laureate Robert Shiller, aren’t so sure Bitcoin is here to stay.

“It is not just that very few people really comprehend the technology behind Bitcoin,” Shiller wrote in a recent column for The New York Times. “It is that no one can attach objective probabilities to the various possible outcomes of the current Bitcoin enthusiasm.”

Shiller thinks trying to value Bitcoin is an exercise in futility, and he doesn’t believe that it can supplant conventional money, either. Besides, other blockchain platforms and cryptocurrencies could outstrip Bitcoin.

“Bitcoin might well be replaced by something different and better, and end up being worth nothing at all,” Shiller wrote.

Is now the time to buy Bitcoin?

With Bitcoin prices lower, there is some interest in buying now.

“If it falls below $10,000, I expect a lot more people to buy in,” said Whitener. “We’re now used to a five-digit Bitcoin price, so anything in the four digits looks cheap.”

For those interested in investing in Bitcoin moving forward despite the Bitcoin bubble, Whitener suggested understanding your interest in bitcoin and other cryptocurrencies.

“If you liked Bitcoin at $18,000 and know why you were investing in it at that time, you probably still like it at $12,000,” Whitener said. “If you don’t know why you bought it though, or you bought it because everyone else seemed to be, then maybe you should take some time to read a few articles, watch some videos, and learn more about it.”

Whitener also recommended looking into other cryptocurrencies.

“They are sitting at lower prices now, and are more affordable,” Whitener explained. “But you still need to understand why you want them, and decide what to do about it. You should only use money you can afford to lose.”

As you can see from the chart below, there are several other cryptocurrencies to choose from. They are often more affordable than Bitcoin, Whitener pointed out, and they can be bought at lower prices since they’ve fallen this week as well.

bitcoin price

Image credit: CoinMarketCap

At the end of the day, you should be careful about the money you put into buying bitcoins. According to Shiller, “Dabbling in Bitcoin lies somewhere between gambling and investing.”

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Published in Invest, News & Policy