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Is Bitcoin a bubble?

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  • Bitcoin price surges have led some financial experts to claim it is a bubble.
  • If BTC is a bubble, it is an atypical one acting utterly different from all great bubbles of the past.
  • The cryptocurrency exhibit features of a bubble and anti-bubble.

Since Bitcoin gained wide publicity and more people began to note the level of disruption it has caused to the financial system, many have called it different names and given different opinions about it. Some of them have labeled it a bubble, primarily due to its legendary volatility.

And in recent times, the surge in the asset price, which has culminated in breaching the $50k mark, has puzzled some in the traditional finance industry. While crypto enthusiasts keep rejoicing at this massive breakthrough and have made some optimistic predictions about the continued rise, skeptics have continued to claim that Bitcoin has no intrinsic value. As such, it remains the “mother of all bubbles.”

This piece explores reasons to know if the leading crypto asset is bubble-like or the skeptics are just reluctant to accept the new reality.

Can we call Bitcoin a bubble?

To determine if BTC is a bubble is not as simple as it sounds. Cliff Asness, the cofounder of Capital Management, in a paper, stated that one of the most overused words is “bubble.” In his opinion, several things determine if a particular occurrence is a bubble or not. And deciding what amounts to a bubble can never be objective.

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However, he stated that for the word bubble to have any validity, the asset price should be such that there is no logical outcome in the future that can justify it.

Proponents of Bitcoin as a bubble theory have also been saying it has no intrinsic value. But is this so? Most people who are investing in the digital asset do so to hedge against the debasement of fiat currency. This is looking more and more likely with time. Quantifying that in monetary terms is, however, not relatively easy.

Determining the fundamental or underlying value of Bitcoin is hard. Even as skeptics continue to say it has no intrinsic value, Bitcoin has continued to prove many wrongs.

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The virtual asset has not fallen in value like most underlying fiat currency. Neither has it been affected by the weak economy. And the digital coin cannot be monopolized to the benefit of only a select few.

It appears impossible to attach a baseline price to an immutable, censorship-resistant token that serves as a means of payment while also, at the same time, counts as a store of value. To establish bitcoin as a bubble, it must be possible to show that its price is in no way related to its underlying value. This, however, looks impossible in today’s world.

The economic hardship caused by the pandemic led to an increase in Dollar supply all over the world as the US government looked to jumpstart the economy. At the same time, demand stagnated. Now that the world is slowly recovering, there is a fear of inflation. And this has been one of the factors increasing the underlying value of Bitcoin as more people see it as a way out of the economic mess caused by traditional financial institutions.

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Bitcoin as an anti-bubble

While skeptics see Bitcoin as a bubble, another school of thought sees the digital coin as an anti-bubble. For there to be an anti-bubble, there must first be a bubble. Proponents of Bitcoin as an anti-bubble have found a perfect one.

To understand what makes Bitcoin an anti-bubble, one only has to look at what motivates investors to buy the asset. At present, the biggest motivation is that investors believe that the government will print more money as it attempts to kickstart the economy again which would lead to an inflated economy.

If this happens, it affects the valuation of many companies that are mostly dependent on the low-interest rates. If the bond bubble should burst, these interest rates will be among the first things to go up. Thus, this makes BTC attractive to these companies as a way of protecting themselves from the risk of inflation.

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To better understand the nature of Bitcoin as an anti-bubble, you only have to imagine the fundamentals of value BTC would have in a world where governments have a balanced account and central banks do not print more money. In this system, there is no fear of financial repression.

In such a world, the demand for Bitcoin won’t be this high and the same thing with the price. Thus, these factors drive the rise in the price of the crypto king, making it a veritable anti-bubble. However, The digital currency might seem like an anti-bubble doesn’t mean its price will not fall. Anything is a possibility in our uncertain world.

While many skeptics generally point out that Bitcoin has no intrinsic value to make their claim, this is not enough. According to Alan Gotthardt, money itself has no intrinsic value except in the faith of the issuer.  And this is gradually becoming applicable to BTC too.

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Final words

It is nearly impossible to determine if Bitcoin is a bubble or anti-bubble as it exhibits both features. Diego Parrila, a foremost economist, has the opinion that the leading virtual asset is 80% bubble and 20% anti-bubble.

However, Bitcoin is gradually establishing itself as a worthy alternative and competitor to the traditional banking system. This will expose it to more regulation, taxation, or even prohibition in extreme cases. So, in the end, it becomes less and less of a bubble, and more people might begin to view it as an anti-bubble.

 

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Bitcoin Can Become The 21st Century Digital Gold, Says Deutsche Bank’s Macro Strategist

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While Bitcoin can continue growing to become the “digital gold,” Ethereum has the ability to be the “digital silver,” according to Marion Laboure.

Marion Laboure – Macro Strategist at Deutsche Bank – believes bitcoin has the potential to become the “digital gold” of this century. However, she expects the cryptocurrency’s price to be “ultra-volatile” in the next few years.

Laboure also praised Ethereum’s use cases, labeling the asset as the “digital silver.”

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BTC – The Gold of The Future

According to Marion Laboure – Analyst and Macro Strategist at Deutsche Bank – Bitcoin possesses all the necessary qualities to step in when the world suffers from rising inflation, doubt, and fear due to the COVID-19 pandemic and the governments’ actions. As its supply is fixed (there will be no more than 21 million BTCs in existence), she stated that the asset could be a successful choice as a protection against the growing inflation.

The increased control by authorities over the population could be another factor that would make bitcoin attractive to the people. Laboure reminded that in such cases, throughout the years, humankind has turned towards assets that were not under the governments’ jurisdiction, such as gold. With that said, the executive believes BTC could become the “21st-century digital gold.”

It is worth noting that Deutsche Bank had a different opinion on the matter in the recent past. Last year, a report from the German multinational investment bank stated that bitcoin’s high volatility is an obstacle that makes the digital asset not a “reliable source of value.”

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According to Laboure, though, BTC’s enhanced fluctuations would not last forever. The asset remains “risky” as of the moment and could be “ultra-volatile in the foreseeable future” but just like gold, which has also experienced this issue, BTC would eventually overcome it.

While bitcoin is the pioneer in the crypto space and the largest digital asset by market capitalization, Laboure also praised Ethereum’s merits. She pointed out that it is more than a cryptocurrency as it offers many applications and use cases such as decentralized finance (DeFi) projects.

In fact, most of the trendy non-fungible tokens (NFTs) are part of the Ethereum blockchain and she noted ETH could be the “digital silver.”

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Laboure concluded that no other cryptocurrency would become stronger than Bitcoin or Ethereum in the next five years.

Marion Laboure
Marion Laboure, Source: Deutsche Bank

Crypto’s Obstacles

Deutsche Bank’s strategist also spoke about the disadvantages of the cryptocurrency space with lack of regulation being the main one. She sees the industry much more settled once this issue gets solved. The environmental concerns that crypto mining causes are the other big hurdle:

“In one year, Bitcoin uses around the same electricity as the entire population of Pakistan (c.217M people),” she reminded.

This has been a growing concern this year, but the number of companies and parties aiming to solve it has increased exponentially as well. For instance, several leading cryptocurrency exchanges have already launched initiatives that would make them carbon neutral, including FTX, BitMEX, and Gemini.

CBDCs, Cash, And Crypto

Laboure also gave her two cents about central bank digital currencies. She prefers decentralized cryptocurrencies saying that the centralized nature of the CBDCs would not be attractive to society. In any case, she believes both assets together with cash would successfully co-exist in the economic network.

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On another note, Deutsche Bank’s CIO, Christian Nolting, opined somewhat differently on the matter. Back in May, he said that the impending launch of CBDCs would be a major threat to bitcoin in terms of serving as a currency:

“A widespread introduction of CBDCs accompanied by higher regulation of cryptocurrencies could create a more challenging environment for crypto assets as some of their advantages compared to traditional financial assets would fade in the longer term.”

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Bitcoin goes up again and valuation reaches 2% and tokens reach up to 19%.

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Even as criticism from China intensified and the weekend slumped, cryptocurrencies started the week in recovery.

With a slight increase in the early hours of this Monday (27), Bitcoin was already recovering 0.93%, reaching US$ 43,621. In 24 hours, the currency has accumulated 2% in appreciation.

Ether, the currency linked to the Ethereum blockchain, started the day up 0.83%. In 24 hours, the currency has already recovered more than 5% of the value lost last Friday and Saturday, with the impact of statements from China.

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In addition to them, other currencies also show signs of recovery. According to TradingView data, altcoins such as Cardano, XRP, Dogecoin and Polkadot also recovered.

Cardano’s currency, for example, recovered 0.67% of its value, reaching $2.22. XRP rose about 1.84% to $0.96.

Solana’s cryptocurrency stays with its big moves, both down and up. This Monday morning, the currency was up 8.44%, returning to US$ 147.05.

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The cryptocurrency meme, Dogecoin, rose slightly compared to the market, rising only 0.28%. According to the TradingView charts, the currency was selling for $0.207530 at 8:00.

Also, tokens from games like AXS, from Axie Infinity also rose again after the weekend crash. With an increase of 2.01%, the AXS returned to the level of US$ 65.04. The ALICE token, from My Neighbour Alice, was also up 3.37%, reaching US$ 10.27.

Finally, the ATLAS tokens, from the Star Atlas game, and the BAKE, from the BakerySwap, were also high this Monday morning. While ATLAS rose 6.88% to $0.08, BAKE rose more than 16% to $1.74.

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China’s critics continue to rock the cryptocurrency market

China’s central bank said last Friday (24) that all transactions related to cryptocurrency are illegal in the country.

The People’s Bank of China (PBOC) has also stated that it will prevent financial institutions, payment companies and Internet firms from facilitating the trade in cryptocurrencies and will strengthen monitoring of the risks of such activities.

After the official statement, the popular Huobi exchange blocked new users from registering with a Chinese phone number. In a statement on Sunday it said it “would phase out existing user accounts in mainland China” by Dec. 31, as reported by Bloomberg.

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China’s government has intensified its crackdown on cryptocurrencies, and its efforts to restrict trade and mining have increased, which has heavily impacted the price of cryptocurrencies. The sharp falls come to worry specialists.

One of the reasons China wants to ban the use and mining of cryptocurrencies is energy consumption. According to the Beijing government, the vast amounts of electricity used in the country come from coal plants.

With the banning of cryptocurrencies in the country, the intention is to reduce carbon emissions and also to inspect cases of financial fraud that had been taking place in Chinese territory. The country recorded more than $2 million in fraud in a few weeks. The cases of money laundering and cryptocurrencies also worried the local government.

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Also read: Vietnamese project promises to be the next Axie Infinity and raises US$1.7 million

Also read: Thetan Arena: What is known about the new play-to-earn game?

Read also: Analysis: China stocks drove Bitcoin price this week

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Bitcoin Price Analysis: BTC still tests $44,000, ready to break higher today?

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  • Bitcoin price analysis is bullish for today.
  • BTC/USD tests $44,000 resistance.
  • Bitcoin is set to break higher today.

Bitcoin price analysis is bullish today as more upside was seen overnight, with the $44,000 resistance briefly broken. Therefore, we expect further upside to follow, likely leading BTC/USD towards a higher high later today.

Bitcoin Price Analysis: BTC still tests $44,000, ready to break higher today? 1
Cryptocurrency heat map. Source: Coin360

The cryptocurrency market traded with a bullish momentum over the last 24 hours. The market leader, Bitcoin, has gained 1.27 percent, while Ethereum is up by 3.8 percent. Meanwhile, Solana (SOL) is the best performer today, with a gain of almost 9 percent.

Bitcoin price movement in the last 24 hours: Bitcoin briefly breaks $44,000

BTC/USD traded in a range of $42,822.37 – $44,313.25, indicating mild volatility over the last 24 hours. Trading volume has declined by 11.66 percent and totals $28.9 billion, while the total market cap trades at $821.7 billion, resulting in the market dominance of 42.25 percent.

BTC/USD 4-hour chart: BTC looks to set higher high today?

On the 4-hour chart, we can see the Bitcoin price action testing the $44,000 mark, which, once broken, will open up the way for a lot more upside.

Bitcoin Price Analysis: BTC still tests $44,000, ready to break higher today?
BTC/USD 4-hour chart. Source: TradingView

Bitcoin price action traded in a bearish momentum over the past weeks. After an initial spike lower on the 7th of September, during which BTC/USD lost more than 15 percent, a several-day consolidation followed.

The $44,000 mark served as support several times until it was broken as a result of reversal from the $48,500 swing high. Early last week, Bitcoin finally found support at $41,000.

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What followed was a reaction higher during the middle of the week to $45,000. However, on Friday, another spike lower was made to $41,000. After further consolidation, BTC/USD made the fourth test of $41,000, again with rejection, indicating that bears are exhausted, and a market reversal is due this week.

Bitcoin Price Analysis: Conclusion 

Bitcoin price analysis is bullish for today as bulls pushed BTC back to $44,000 resistance overnight. As long as the bullish momentum persists later today, we should see a break higher, with the next target the $46,500 resistance. 

While waiting for Bitcoin to move further, read our guides on NFT Games, CoinJar, as well as Bitcoin Memes.

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