If you’ve been following the cryptocurrency markets recently, you’ll know that Bitcoin, Ethereum, and even altcoins like Dogecoin are all experiencing rapid growth. Bitcoin’s price has risen past $60,000 after sitting around $10,000 just a year ago.
So, what’s to blame for the bitcoin market’s recent surge? Is this increasing trend likely to continue, or is this just another short-lived crypto bubble poised to burst?
A Slice of History
First, let’s cover a slice of history. Bitcoin, one of the first (and definitely the most popular) cryptocurrencies, was established in 2008 by an unnamed individual (or possibly, a group of people). It first surfaced in 2009, but received little attention at the time. A few early users recognised the currency’s potential right away, but for the most part, Bitcoin was considered as enigmatic, unpredictable, and downright odd.
Cryptocurrency interest skyrocketed around 2017. Bitcoin prices soared to nearly $20,000 by the end of the year, thanks to steadily growing prices, widespread availability of crypto wallets, and considerable media attention.
However, as prices began to collapse in 2018 to less than $7,000, this growth was seen as erratic and reactive. Other cryptocurrencies’ prices followed a similar pattern, increasing dramatically, then decreasing and settling.
For a few years, prices and public interest remained stable, with a few lows and highs.
Bitcoin and other currencies have only recently experienced a significant rebound, reaching massive all-time highs.
How did we end up here, exactly?
Renewed Public Acceptance and Coinbase
For starters, Bitcoin and other cryptocurrencies have proven their resiliency, and the general public is seeing signals that they are here to stay. Despite the fact that it plummeted to new lows following a bubble burst in 2018, many sceptics predicted that this was the beginning of the end for a novelty currency.
But this was not the case; Bitcoin remained in widespread usage in the years afterward, exhibiting no indications of waning as a market currency. Those who recall the currency’s rapid surge and fall three years ago have a different perspective on it, seeing it as more legitimate and capable of withstanding adversity.
Many different firms and organisations are pledging their full support for Bitcoin and other cryptocurrencies, which is helping to boost public confidence. Coinbase, for example, launched its initial public offering (IPO), allowing customers to purchase, sell, and use cryptocurrencies openly for the first time. It’s also reported massive revenue growth, boosting investor confidence in Coinbase’s and the cryptocurrencies exchanged on its platform’s futures.
Alternatives to Bitcoin
We’ve spent the majority of this post talking about Bitcoin because it’s the most visible and well-known of all cryptocurrencies, but other cryptocurrencies, such as Ethereum, Litecoin, and even the meme-based Dogecoin, play a supporting role as well.
Interest in various cryptocurrencies has a synergistic impact: as more people acquire and appreciate a currency like Bitcoin, other currencies see a ripple effect as individuals strive to get in on the “ground floor.” However, increased activity in other currencies is beneficial to Bitcoin, as it receives residual attention as the market’s major player.
Inflation and the State of the Economy
Because of their long-term economic concerns, some people are investing more significantly in cryptocurrencies. Heavy quantitative easing, increased salaries, cheap borrowed money, and other variables might contribute to a period of severe inflation and a loss of the American dollar’s purchasing power.
If this scenario plays out, the value of a decentralised, independent digital currency might theoretically rise in comparison to the US dollar, resulting in a windfall for holders.
COVID-19 and the Future of Remote Digital
It’s also worth noting that the COVID-19 epidemic had a significant impact on our daily perceptions of and use of technology. People were essentially trapped indoors for months, paying for everything online and working from home.
Even if we aren’t completely augmented cyber-humans yet, it made people realise how dispersed we’ve become and how reliant on digital technology we’ve grown.Cryptocurrency reigns supreme in a society where individuals work remotely, pay digitally, and have complete faith in online businesses.
We also can’t overlook the importance of FOMO (fear of missing out). When a customer sees their friends, family members, and even strangers profiting from a trend on the internet, they are typically overcome with worry at the prospect of “losing out.”
Millions of investors bought in as Bitcoin rose from $10k to $20k, tripling the holdings of Bitcoin holders throughout the world, just to be a part of the expected ride from $20k to $30k. Ironically, this increased buying activity is a large part of what has pushed Bitcoin’s price higher, causing even more FOMO.
The problem with FOMO is that it frequently has a pyramid scheme effect, in which people buy in simply because they think someone else will buy in at a greater price, rather than because they believe in the intrinsic value of what they’re buying. When FOMO-driven buying behaviours reach a high, they almost always drop in the aftermath.
Is This Another Speculative Bubble?
Is this the beginning of a new bubble? Will Bitcoin and other cryptocurrencies’ prices “pop” like they did in 2018?
It’s difficult to say for sure, but there are a few factors that can assist us in accurately predicting the future.Like all other types of currency, Bitcoin’s price and value are nearly entirely determined by customer belief. The paper we call a $1 bill isn’t really valuable in and of itself.
The value is derived from our collective belief in its purchasing power; we are completely confident that it will be accepted no matter where we take it, and that others believe in its long-term reliability. The same may be said of gold; while it is true that gold is limited, scarcity does not make it precious (for example, radioactive waste is even scarcer than gold, but its value is practically negative). We all believe gold is valuable, thus it is valuable.
As a result, Bitcoin’s future is totally dependent on how consumer perceptions shift. Bitcoin has currently proven to be nearly “unbreakable.” It has lasted 13 difficult years. It’s been through several burst bubbles. Even during its more vulnerable early years, it has resisted repeated hacking and manipulation efforts. As a result, consumer confidence would have to be severely undermined.
Regulatory intervention is one factor that could cause another significant decline. The SEC, as well as regulatory organisations throughout the world, are actively monitoring bitcoin trading patterns.
It might have a significant influence on value and trade if they restrict or modify access to cryptocurrency for substantial sectors of the population.
However, the dramatic increase in Bitcoin’s price could be overblown. While consumer confidence is strong (and rising), it’s difficult to assess whether price rises are a genuine representation of the rate at which confidence is growing. In other words, it’s understandable that the price of Bitcoin is rising – but such a large increase may be unjustifiable.
Bitcoin is a sophisticated financial construct, and economics is a complex topic of study. No one can predict how the stock market would perform in the future, and we have considerably less information and historical precedence for cryptocurrencies. With the advantage of hindsight, it’s easy to understand how we got here, but predicting where we’ll go from here is nearly impossible.