Not Your Typical Bubble!
So 9 out of 10 chances are you’ve heard or read somewhere that “Bitcoin is a bubble” But what does that even mean? Aren’t bubbles supposed to be a good thing? Think again! A bubble is a type of investing phenomenon wherein investors put so much demand on a certain asset that they drive the price extremely high! This, however, is not due to anything substantial and will cause said asset tol eventually POP. Meaning the asset will also experience a sudden drop in price, taking the invested money down along with them.
As we all know the price of Bitcoin is very volatile. Last year it keep going up and up and up! All the way til it reached just below $20,000 and this year it’s been going on a crazy rollercoaster ride going both up and down. So it’s no wonder that some have been thinking that bitcoin is a bubble that’s just waiting to burst. In fact, some speculate that the bubble has already bursted as Bitcoin has experienced one of it’s biggest dips this year when it hit around $6,000 in February.
The bitcoin bubble is often compared to other historic bubbles, two of which I will discuss today. So the first one is the Tulip Bubble which occurred sometime in the early 1600’s. Basically, what happened is that there was such a huge demand for tulips, they became the go-to flower. It is important to note that tulips (unlike fiat money) were not physically backed by anything like gold, they became popular due to pure speculation. What made this bubble suddenly pop is a disease that started to spread which caused a discoloration in the tulips. This caused people to almost immediately ditch it, therefore, causing a huge dip in the market. Suddenly, NO ONE wanted this flower.
Another popular bubble, which all the 90’s kids out there would be familiar with, are Beanie Babies! Those little stuffed animals with the little heart tags. They were extremely popular back in 1997-1998, so much so that they made up 10% of e-bay’s sales. Basically, when one animal would announce “retirement” then the market price of that certain animal would spike up. They even made special limited edition characters like Peanut the Elephant or Mystic the Unicorn. The most expensive one sold for $10,000! The trend was so big, it even hit headlines that there was a father who lost his son’s college fund because of these little critters. They were so popular because people found it fun and exciting! But this was all purely a speculative craze, and let’s be honest, you couldn’t possibly think that would’ve lasted very long.
Bitcoins vs. Bubbles
So let’s look at these two cases from a currency standpoint. Both tulips and beanie babies can just be made whenever people want. Just like fiat money, where some countries experience hyperinflation; and the more money in circulation, the less value it has. Now the beauty of Bitcoin it CAN’T be manipulated unlike dollars, tulips or beanie babies. Also, bitcoin has been around since 2009, that’s 18 years! If it was indeed a bubble it would be the biggest one we’ve ever experienced. But even so, the fact that people from all over the world still believe in this technology and still uses it is enough proof that this is something that will definitely be sticking around.
Do you think Bitcoin is a bubble? We’d love to know your thoughts in the comment section down below! If you’re wishing for a more visual presentation of the topic, feel free to watch our video of the same name by clicking the link below!