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Beyond the Bitcoin bubble

Cryptocurrencies were born because of the 2008 financial crisis, where trust in central banks was at an all-time low, and people were uncertain regarding the future of the banks. Bitcoin was the first of the cryptocurrencies, otherwise known as the “OG” or “Original” cryptocurrency. The currency was online, de-centralized and could not be controlled by anyone apart from its users. These factors gave the currency a significant amount of security through cryptography and decentralized ledgers, which gave the potential for a currency that could be used by anyone across the globe, with minimal transaction costs and security against hackers or governments attempting to seize assets.

To this date, there are still very few cryptocurrency users that fully understand the technical aspects of the currency. Furthermore, until the beginning of 2017, there was only a small group of libertarians who were interested and used Bitcoin and the other currencies. However, during the second and the third fiscal quarters of 2017 the “Bitcoin Boom” happened, it was everywhere. Google trends reported that “How to buy Bitcoin” was the third highest google “How to” searches in 2017. Furthermore, Coinbase, a mobile application that allows people to purchase and trade cryptocurrencies was the most downloaded app during November and December of 2017 on the Apple Store. This led to what was to become a speculative bubble. The price for a singular Bitcoin rose from just over $1,000 a coin at the start of 2017, to $15,000 a coin at the end of the year. The currency had hit a peak just below $20,000 in Mid-December and has now readjusted down to approximately $8,000 as of April 15.

During this tremendous rise and then fall there were many debates regarding the actual value of Bitcoin and if it was yet another speculative bubble. These debates arose because although many were enjoying the fruits of a bull market, there was no specific reason for the price of Bitcoin and other cryptocurrencies to have risen at such a fast pace. The debates online and on national television lasted for a few months until the price of Bitcoin peaked and dropped in the early days of 2018. Unlike publicly traded stock of a company, where when a company has an excellent quarterly earnings report or releases a great new product the stock usually tends to rise, a Bitcoin’s price is solely driven by how much another person wants to pay for a coin.

Many economists were comparing the cryptocurrencies to the “.com” bubble of the early 2000’s. During this speculative bubble, many online companies and business rose in value even though they had no actual value. Although the “.com” bubble led to a recession in the financial markets and created much distrust in Silicon Valley and others who were pumping and dumping companies, the speculative bubble also gave birth to companies like Amazon and Facebook which are used daily by billions of people across the globe.

For this reason, I believe that Bitcoin and its impressive run should not be regarded as a bubble. It is just the beginning of the adoption of the “Blockchain” technology that runs the currencies, and although the price of a single bitcoin has almost halved, every day there are more and more banks and financial institutions that are beginning to use and adopt the Blockchain technology. In the future, cryptocurrencies and the technology that runs them will fundamentally change the way people see financial transactions.

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