Bubble Theory: In simple terms, it’s a term used in finances to describe a market that is supposedly out of control with too many buyers trying to buy. A market that causes people to buy without any reasonable reasons to believe in a return. So, it grows uncontrollably.
Described as a rapid rise in price of an asset that is far beyond what it is “fundamentally worth”. Which is said to result in a “pop” eventually, proving its worthless values.
“Irrational exuberance,” says former Federal Reserve Chairman Alan Greenspan.
It can happen to commodities, industries, stocks market, housing market, securities and all sorts of financial markets.
A fragile pellicle.
How to spot bubbles: The Common Stages of Bubbles
- Excitement: When buyers become uncontrollably interested in a new products, trend or technology in the financial market.
- BOOM stage: Buyers quickly enter the market
- Exuberance: Assets prices skyrockets.
- Profits: Smart investors start to sell and make money
- Panic: Assets starts to downfall as fast as it climbed until it collapses.
When bubbles pop recessions or depressions usually follows.
So, are we in a bubble?
We do not know.
For anyone to know for sure it would have to pop first.
But It hasn’t, so until then, no one can assertively affirm that it is, as we have seen many legendary experts like Warren Buffet, Ray Dalio and others in the economic and financial market do. But with all due respect, they can only predict.
Cryptocurrency has grown rapidly, and it is inevitable that people will lose money, for several reasons. But that is expected to happen to any investment you make, a rule to invest in anything is: ONLY INVEST WHAT YOU CAN AFFORD TO LOSE.
“While the word bubble sounds scary, almost all new technologies tend to go through one. Evidence shows that railways, radio and obviously the internet all underwent bubbles before they became mainstream.” — Jose Maria Macedo Multiple award-winning serial entrepreneur and Blockchain analyst.
Experts are used to valuation techniques, which applies to markets based on fiduciary money, and so cryptocurrencies throw them off completely, and they naturally go ballistic calling it a bubble. Which is okay, its always okay to be cautious and prudent.
Whether, cryptocurrency is a bubble or not, allow me to give you some of my thoughts…
First, cryptocurrency prices are not tied to a government like fiduciary money, so who is to say what a cryptocurrency is fundamentally worth? We are, the investors, the coin holders, as we buy, sell and trade, it’s an organically defined price.
In my humble opinion, no one should get to say cryptos are being priced far more than it’s worth, because there’s never been anything like it, there’s no base to compare it to, it gains it’s worth naturally. So whatever price you get to see given to a coin, that’s what it’s worth, period. They have the price we believe they have, they have the price we have given them.
Second, there is such expectancy for cryptocurrencies to fail from where cryptocurrency plays a threatful role, it’s understandable why they desire cryptos to be a bubble so badly (it even could be). But it’s not out of care that they affirm this but out of fear.
Third, let’s make this clear, cryptocurrencies are not a threat to fiduciary money, fiduciary money, if anything, is a system that is a threat to itself and to any individual or centralized institution anchored to it.
As Rick Falkvinge supposedly The Bitcoin Cash CEO says, “Cryptocurrency doesn’t have to replace fiduciary money. All it has to do is survive, as they (referring to fiduciary money) collapse under their own weight.”
Why do I believe that? Debts causes countries to “produce more money” which creates inflation, which destroys with the price of their money, taking the country down to nothing, and we are watching the world collapse in debt, take a look at Venezuela and South American countries. Take a look at this Washington’s Post Article:
Research about inflation around the world, and what happens to the countries and to the people tied to their fiduciary money in the face of debt.
Could this be the result of centralized authorities over a country’s financial system? Maybe, definitely something to research.
What I do know is that cryptocurrency has come to revolutionize the way we deal with our money individually and collectively.
It came to give voice to questions such as “Why do we put our money in the bank?” “Why is the bank allowed to deny me access to my money?”, “Why should we trust banks?”, “Why have we chosen to do things the way we do them?”.
Its giving us all an entirely new system against all traditionalism, and this can only probably bother the ones who desire to keep a hold on to the control it has right now over other people’s money, because they make money holding on to yo money. Hellooooo….
Cryptocurrency blockchain’s proposal may stumble and fail along the way after all it is a brand-new technology so until it finds its stable path it is only natural of any product to go through ups and downs in its crawling stages.
“We’d like the bubble to break. We still see a lot of hype in the market, valuations are high and unreasonable. We really think if the bubble bursts, it’s a good thing for the industry.” — Head of the Binance Labs Ella Zhang
So, let us know….
What are your thoughts about this? Please tell us in the comments what you think! Do you believe we are in a bubble?
“If you want to grow, you can’t feel shackled by a job description.”
Cofounder Of Kano