Over the course of 2017, Bitcoin was one of the fastest-growing assets in the world but is this cryptocurrency heading for a supersized crash? Bitcoin has been drawing comparisons with past economic bubbles, so we thought it would be useful to take a look at whether Bitcoin is a good investment or simply a bubble waiting to burst.
Looking Back at Past Asset Bubbles
We can learn a lot by taking a look at past asset bubbles. One of the earliest examples of an asset bubble, the tulip mania bubble of 1637 occurred when Dutch speculators bought and sold tulip bulbs, pushing up prices exponentially. Prices continued to skyrocket to unsustainable levels and at one point the selling price of tulip bulbs was 10x the value of annual income from a skilled job. This asset bubble crashed spectacularly overnight as demand for the bulbs dried up.
The arrival of numerous internet companies on the stock market helped to create a buzz in the 1990’s that led to increased speculation about the value of internet companies. In fact, a number of new internet firms were able to win supersized valuations as public companies, even though they showed little to no profit. At the height of the Dotcom Bubble, the NASDAQ index peaked above 5000; double the previous year as the report by ETX Capital outlines.
How Bitcoin Compares to Previous Asset Bubbles
Here are some basic facts for those of you that have managed to avoid the excitement surrounding cryptocurrency: Bitcoin is a revolutionary form of digital money that allows users to complete transactions on decentralized computer networks. With cryptocurrencies like Bitcoin, the money resides in your own computer “wallet”, not in a centralized banking system. Your currency is protected by state of the art cryptography.
With Bitcoin prices soaring to new heights, there are increasing concerns that a new asset bubble is forming, as the currency starts to be treated like a store of value. The comparison with past asset bubbles including the tulip mania of the 17th century and the Dotcom Bubble in 2000 could foreshadow a collapse for this currency.
Should I Invest in Bitcoin?
There are some rational reasons to invest in Bitcoin. Serious investors are just starting to get interested in a market that so far has been dominated by retail investors. If you are considering investing in Bitcoin, it’s crucial that you do your homework and know exactly what you are investing in. This is still a highly risky and somewhat speculative investment.
With Bitcoin, investors can expect huge swings, so it is not the type of investment for the faint-hearted. Even though the value of Bitcoin climbed to astronomic heights in 2017, it also dropped by 40% at various points.
If you’re the kind of person who enjoys taking risks, then you can easily start trading in daily rolling cryptocurrencies online. If you opt to trade on the Forex Market, you will be able to trade 24/7.