Is bitcoin a bubble? Why does bitcoin rise or fall?
Is bitcoin a bubble? By the end of 2017, the price of bitcoin soared above $19,000. However, in 2018, the bitcoin exchange rate has only been falling. This has dragged down the entire market, causing all cryptocurrencies to sink. Is this normal?
Why is bitcoin falling? Will it fall even more?
Find the answers in this article.
The truth is that no one knows what will happen with bitcoin in the future. But if you are determined to invest in bitcoin or are interested in learning how it works, some financial training is essential to understand these movements. The price of bitcoin has followed certain well-known patterns for some time: those of speculation.
The fluctuations in the bitcoin price are not something new. Major investment funds have been doing this with stocks for years. But in the bitcoin market, millions of users have bought digital assets without any financial training. It's easy for them: they are being taken advantage of.
If you have basic knowledge of the stock market, it is easy to detect trends in cryptocurrency prices. If not, don't worry. In this article, we explain why the price of bitcoin falls or rises.
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Is Bitcoin a financial bubble?
Many people think that cryptocurrencies are a bubble. They relate the price increase to the tulip crisis of the 17th century. They even claim that bitcoin is a pyramid scheme. Surely someone has told you that bitcoin is a fraud or you have read negative comments about cryptocurrencies online, and that's why you're reading this article right now. But, how much truth is there in all these theories?
In financial terms, a speculative bubble is an abnormal and sustained increase in the prices of an asset. The rise in value is often related to moments of euphoria and in the long term it leads to an overestimation of the real value of the asset.
The truth is that bitcoin has appreciated a lot in recent years. But the key question is, what is the real value of a bitcoin?
By definition, bitcoin is a decentralized currency. It does not depend on any central organization to regulate its price. Its value is solely linked to market confidence in its future. If tomorrow bitcoin is accepted by society as a real currency, the bubble theories will have no support. On the other hand, if the bitcoin project fails, we will likely be facing an asset with no value.
The evolution of cryptocurrencies and the real price of bitcoin fundamentally depend on society's trust.
Although some central banks are accepting that bitcoin is an asset with value, the future of cryptocurrencies really depends on society's trust. Therefore, if you believe that a virtual and decentralized currency has a place in a new financial system, it doesn't make sense for you to think that bitcoin is a speculative bubble.
The truth is that bitcoin is something new. Something innovative that has emerged in our society and promises to change the traditional way of understanding finance. That is, until recently, bitcoin was an unknown. And the unknown produces fear. For this reason, you will find numerous articles and news on the internet that do not trust the future of cryptocurrencies or claim that bitcoin is dead.
Although it will probably take years for society to accept bitcoin as an asset with value, major companies are aware of the advantages offered by the technology born with this cryptocurrency: The blockchain.
Is bitcoin a financial bubble? In this video you will find another perspective to the one presented in this article.
The blockchain, or block chain, allows for the creation of a secure and fast payment network. It eliminates intermediaries and allows for international transfers in a matter of minutes. Many banks and financial companies are investing millions to incorporate this technology into their processes. Even applications beyond the financial sector are being developed.
The success of blockchain is driving the consolidation of cryptocurrencies.
Learn more about blockchain in this article.
But blockchain is not the only thing that bitcoin has brought. Bitcoin is a social appeal for a single currency. A currency that does not understand borders or governments.
Of course, this is not going to change overnight. But it serves to lay the foundations for a technological, but also financial, revolution.
Therefore, Bitcoin is a real project. It has a purpose, it is in use, and it has an army of programmers behind it who continuously improve the functioning of its protocol.
The problem is calculating the real value of Bitcoin. Being a project, its value will depend on the trust it transmits to society or the market. Investors will translate that trust into a price.
If bitcoin is adopted by companies or if applications start to be built on its blockchain, it will be a sign of acceptance, so it is normal for its price to increase.
If, on the other hand, news of cryptocurrency theft or companies fighting against bitcoin implementation arises, it is normal for its price to fall.
When a government announces that it will begin to regulate cryptocurrencies, markets usually react negatively. This is because it violates one of bitcoin's main characteristics: decentralization. However, it is a sign of acceptance, so in the long run, it will benefit the value of cryptocurrencies.
Since the real value of bitcoin is unknown, it is not possible to affirm that it is a speculative bubble. However, the truth is that its price is manipulated. Don't worry. This is normal for all financial assets. Large investment funds frequently manipulate the prices of companies in the stock market to obtain profits.
Next, we will explain how these large companies influence the price of cryptocurrencies.
Why Bitcoin is falling
The behavior of the bitcoin price during 2018 is something normal. It is known as "consolidation". It is also often said that the "market is self-regulating".
The truth is that most financial markets are manipulated. There are a series of large investors, experts in the Stock Market and Financial Markets, with hundreds of millions of euros to invest. Their power is such that they can control the market. They can create euphoria to skyrocket the price of bitcoin or panic and bring it down.
In financial jargon, these large investors who control the market are known as sharks. The small investors who fall into their traps are called fish or little fish.
Why is Bitcoin worth so much?
The rise of Bitcoin in 2017 is something that big investors are used to doing. The strategy was to "load up" on bitcoins during the previous months before the value soared. Then, they created a lot of hype around cryptocurrencies.
What they do is not just gradually increase the value of the asset. They also buy publications in major media outlets to make it resonate in society.
What happened next, we all know. The euphoria was at its peak. Thousands of people who had never invested before rushed to buy Bitcoin. They fell into their trap.
Bitcoin crashes because the market is manipulated. Bitcoin increases in price so that the sharks sell. Pure bitcoin speculation.
When the value of bitcoin increased enough, the sharks started selling. Since they owned a large amount of bitcoins, the selling was much greater than the buying. The result was obvious: Bitcoin crashed.
Cryptocurrencies fall, will they rise again?
As we have mentioned, the increases in bitcoin are not something new. They occur continuously in different markets. It has even happened previously in bitcoin.
Bitcoin Evolution
For example, in the climb of 2013. During 2012, the price of bitcoin was bouncing between $5 and $10 (If only...). It started 2013 with a price of $13.50. But bitcoin gradually rose to exceed $250 in April of that same year. That is, it appreciated more than 1,700% in less than 4 months. After that, the inevitable happened: The first major bitcoin fall.
But even though it fell, it certainly did not return to pre-rise prices. Moreover, it did not even drop below $70. The price of bitcoin remained in a sideways trend, between $70 and $150 until the end of the year.
In October 2013, the value of bitcoin entered a bullish trend once again. The price shot up again and exceeded $1,200 in December. 5 times more than the previous rise, which seems ridiculous in this graph. Who could have imagined?
In both cases, bitcoin entered free fall after the rise and then entered a sideways trend. But in neither case did it return to pre-rise prices.
We all know about the next price increase. The revaluation of bitcoin was much greater. It was when in December 2017, bitcoin almost reached $20,000 and made headlines around the world. In this graph, the rises of the years 2013 and 2014 are hardly visible. They seem ridiculous.
Is Bitcoin in free fall?
Well, Bitcoin is not going through a good moment. Bitcoin has remained around the $6,000 support zone for most of 2018.
However, towards the end of the same year, it entered a bearish trend and has lost 50% of its value. Right now is a time to be cautious with Bitcoin. No one knows if it will stabilize at a certain price and then rise, or if it will continue to fall.
At first glance, it seems that the first support to watch is the $3,000 zone. If it loses this value, the drops could be more significant.
In technical analysis of financial markets, a support zone is a price level where the buying force exceeds the selling force, breaking the bearish trends.
Will Bitcoin rise?
No one knows if Bitcoin will continue to rise. The truth is that it seems to be following a similar trend to previous cases: It has found a support zone, it will consolidate and in time it will rise again.
If bitcoin keeps falling, is it time to buy?
Surely the big investors will prolong this trend to despair the small fish and be able to buy their bitcoins at these prices. If in the future, the price of bitcoin were to rise again and it will be then when the sharks sell, with substantial profits. Therefore, current prices seem like a good buying zone.
However, this is mere speculation. An analysis obtained by studying the behavior of bitcoin in the past. Although past trends can be helpful in studying the future behavior of a cryptocurrency, they are not always accurate. We must be cautious.
What if bitcoin crashes?
It wouldn't be unusual if bitcoin keeps dropping. Bitcoin can fall even further. The cryptocurrency market is very volatile. It's a new financial asset and it's difficult to predict its movements.
It is possible for bitcoin to lose all its value. Therefore, it is very important that if you decide to invest in cryptocurrencies, it is always with money you don't need and are willing to lose.
However, we don't want to be alarmists either. For example, in March 2018, the average bitcoin price in the previous 50 days was below the average recorded in the previous 200 days. This is a very technical concept that specialists call the death cross of bitcoin and which, according to them, anticipates strong bearish pressure.
What is the limit of bitcoin?
It is impossible to predict the limit of bitcoin, neither its maximum nor its minimum.
In the Stock Exchange there are objective prices. These objective prices are calculated based on the results of companies.
However, with bitcoin you cannot do the same. The value of cryptocurrencies cannot be calculated. It depends on the market's confidence in the success of the project. And that, as of today, is not measurable.
You may find analysis of the price of cryptocurrencies. These will be technical analyses. That is, they are calculated based on the behavior that the value of bitcoin has had in the past. However, the market is so manipulated that technical analysis also does not make much sense.
However, it seems that cryptocurrencies have come to stay. They have been a real technological and financial revolution. Without a doubt, the financial system will be completely different from what we know in the near future. And all thanks to bitcoin.
Nevertheless, nobody knows the price that bitcoin will reach when it stabilizes, if it will stabilize at all, or even if bitcoin will continue to be the reigning cryptocurrency.
If Bitcoin goes down, do you recommend buying?
No. Absolutely not.
We will never recommend you to buy any cryptocurrency. Nobody should do that.
Currently, the indicators seem to reflect that there will be a new rise similar to that of 2013, 2014 or 2017. However, nobody can guarantee that it will happen again.
What we do want is for you to not forget what we have tried to convey in this article:
- We cannot ensure that cryptocurrencies are a bubble. However: The market is completely manipulated. If Bitcoin falls today, it is most likely that the sharks are taking profits.
- Market manipulation of asset prices is normal in all markets. They have been doing it in the Stock Market for decades.
- If you decide to invest in Bitcoin, it should be solely your decision. Do not believe supposed experts or gurus that you find on the internet.
- And we repeat it. In cryptocurrencies, you have to invest money that you do not need and that you are willing to lose. If Bitcoin falls in price, you can lose everything.
Did you find it interesting? Learn much more about Bitcoin in our cryptocurrency guide.