A bubble, a fraud, a tulip, a magic bean factory, and a Ponzi scheme; these are some epithets people will say about Bitcoin. In a stock-market bubble leading up to the Great Depression, Irving Fisher, an economist, declared in New York Times that stocks “have reached what looks like a permanently high plateau” until a collapse of stock losing 89% of their value. Moreover, many optimistic pronouncements uttered by current 2007 and 2008 National Economic Council Director Larry Kudlow turned the table down.
Up to a great Bitcoin bubble of late 2017, John McAfee, founder of computer security company McAfee LLC, and passionate cryptocurrency evangelist wrote in Twitter that he believes Bitcoin is not a bubble yet people just simply do not understand the new mathematics of the Blockchain or did not care enough to try. Also, he believes that bubbles are mathematically impossible in this new paradigm. Until a few days later, Bitcoin’s price briefly peaked at $19,511, then plunged epically of total lost, approximately, 82%.
Does that mean Bitcoin is dead? Not necessarily, since the cryptocurrency has recovered from several previous bubbles and crashes, including one in 2011 that was just about as devastating for losing within its longest streak. Started in the seventh week, the drop occurred after trading near $20,000 last December, Bitcoin has lost more than 80% of its value as speculators lost confidence and regulators increased scrutiny. Other cryptocurrencies have suffered too, with the Bloomberg Galaxy Crypto Index down 85% year-to-date.
Bitcoin and its cryptocurrency peers have been attacked by regulatory setbacks and losses have accelerated since Bitcoin Cash split in November. Therefore, an asset bubble is just a rapid rise and abrupt crash in prices. Defenders of the efficient-market theory argue that these price movements are based on changes in investor’s beliefs about an asset’s true value.
Clearly, Bitcoin is not necessarily for ordinary investors who don’t tend to get in early on potentially revolutionary new technologies or to have the savvy or luck to time the market. Hence, people ought to imbue Bitcoin bubble as a learning experience. Additionally, always keep in mind that financial bubbles are real, and they will make your life’s savings vanish if you are not careful.