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The Bitcoin Bubble – Are We Looking Into A Long Crypto Winter?

One year after the block reward was halved the last time, numerous speculations about bitcoin are starting to appear in the media, along with the rise in the price of the most popular cryptocurrency. Today’s situation is very similar to the one from 2013, when the price of bitcoin was rising after the block reward was halved in 2012. The price at the beginning of 2013 was around 13 dollars and by the end of the year it went up to over 1200 dollars.

There are various reasons for this rise, but such an enormous rise was unprecedented. The current rise of 500% in 2017 can be compared to the one from 2013, although it is almost impossible for bitcoin to multiply its value by 100 times, like in 2013, having in mind the current capitalization of the cryptocurrency is more than 100 billion dollars.

However, the current situation is different than the one from 2013. Bitcoin is widely accepted now, there is no Mt. Gox where bots used to buy bitcoins, the ecosystem is more developed, etc. The increase of 500% in one year is an indicator of a bubble being created. There were no catalysts to trigger a rise this big and it seems that the fear of loss played its role. The beginners in the cryptoworld grasped bitcoin and the ICOs because they were promised huge profits. They believe the situation is different this time.

While traditional economists believe the market is composed by rational investors, behaviorists think differently. People who made big profits are willing to undertake higher risks than they would normally be willing to accept. The situation can be compared to the gamblers taking higher risks after winning, believing they are playing with casino’s money now.

With the accelerated rise of the price of bitcoin this year, many investors noticed their portfolios are growing quickly. Instead of assessing whether bitcoin is overestimated and if maybe it is time to sell, they are ready to keep it longer due to the high profits.

People were expecting the price of bitcoin to return to its normal level after 2013, but it has continued to rise in 2014 as well. This year was exceptionally good, which means the potential break would be extremely painful. Most of the people trading with cryptocurrencies would be badly damaged and a lot of time would be necessary for the things to return to normal.

 

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