Will there be a Bitcoin Bubble?

After three years of the bubble, which inflated Bitcoin price in a spectacular fashion from 5,000USD to 20,000USD in the space of three months, plunging more than 80%, the Bitcoin, again, is on the verge of recording a very high surge.

As of today, December 23, 2020, it has been trading above 23,000USD, this is from 10,000 USD in October 2020 and 5,900USD in March 2020. And we keep getting reports that by the end of 2021 Bitcoin could surge to 100,000USD or even above 300,000USD.

Bitcoin prices are extremely volatile, so most likely, by the time you are reading this article, the value might have gone up, or down again.

So what are the assumptions we are taking from all these? will there be another speculative bubble, fuelled by the “greater fool theory”?

We can’t be sure at this time because unlike the 2017 bubble, there were a lot of noises and excitements which are not even based on actual mainstream adoption. And this period, there are more substances and factors to Bitcoin price rises.

Below are some basic trends that can affect the change of history next year

Digital Money is Coming

The effect and impact of COVID-19 on the economy cannot be overemphasized and we see governments of various countries pumping large amounts of money into economies. As investments such as properties, savings, and bonds are becoming less attractive, investors have been looking to invest in better prospect assets.

Assets such as gold have been one of the major things investors are flooding money towards, also assets such as stocks which aligns with the digital economy have been seeing much concentration these days. Some of these favored stocks include Amazon, Apple, Paypal Etsy, Microsoft, and Zoom. Bitcoin offers aspects of both.

And we see a tremendous increase in cashless payments and online shopping due to COVID-19, this has also increased the interest in digital money.

Central banks around the world which includes the US Federal Reserve, Bank of England,  European Central Bank, Swiss National Bank, and Bank of Japan are trying to push ahead and develop their own digital currencies, this is what we call CBDCs. Central Bank Digital Currencies. We have seen China leading in this, they launched their official digital currency a few months ago.

We see cryptocurrencies becoming more usable, as “stablecoins” values are being pegged to Central bank currencies, this has improved coin wallets and also makes it easier to swap tokens.

We are experiencing different indications that these trends will converge. Some of them are:

China’s Digital Currency Electronic Payments system is reported to soon start accepting Ethereum applications.

We have Paypal also, you can now buy Bitcoin with your Paypal accounts (this is only available for US users now), and it is reported that will enable Paypal payments with Bitcoin in 2021.

The Technology is Evolving

Every day, we see that the technology that supports Bitcoin and cryptocurrencies at large is maturing.

One of the biggest challenges Bitcoin faces is the large amount of energy-intensive computing processes that are required to make Bitcoin transactions secure for you. Mining Bitcoin releases a lot of carbon and it has been estimated that the emission is more than that of a country such as Sri Lanka.

Developers and Miners have embarked on a major technical upgrade, this will in time take away the energy-intensive computing processes. We also have new layers of technologies being developed, these will allow financial markets to start using blockchain technologies. One of them is the decentralized finance – Defi, which is the process of using blockchain to build automated and digital financial markets. This technology includes decentralized derivatives trading and exchanges without involving any traditional intermediaries like banks or stock markets. This we know can only be possible with blockchain infrastructure.

Other technologies are trading algorithm used by different trading platform that offer investors profitable trading. Check here; for more info.

Institutions see Bitcoin Value

Today, we see many institutional investors embracing cryptocurrency unlike years before. Grayscale Investments – the United States cryptocurrency asset manager, last month surpassed 10 billion USD in cryptocurrency assets for institutional investors. And this year, a financial services company Guggenheim Partners announced it could invest up to 530 million USD in Bitcoin through Grayscale.

So the question many investors pose today is

“Should we buy Bitcoin?”

Well, the answer is that it is still a gamble. The opportunity might have opened in early 2020 when prices were very low and the financial markets were filled with uncertainty and confusion. Now investors might just risk buying high and selling low.

We should all know that Bitcoin prices are volatile and it is a speculative asset. Many investors have lost money in the past by coming in at the top.

Maybe things might change this time, and the Bitcoin bubble won’t burst. There are no sure answers to these questions. Trade only the money you can afford to lose!

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