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A Brief History of Investment Bubbles (And Why Bitcoin Is Still Undervalued)

Posted 26 August 2017 A Brief History of Investment Bubbles (And Why Bitcoin Is Still Undervalued)
Written by Jon Gulson @jongulson
One of Bitcoin’s most common criticisms (it’s a bubble!) is inevitable given the meteoric rise, multiple returns and road to riches produced in such a short space of time. But does this mean cryptocurrency valuations have lost leave of their senses?

Characteristics of a Bubble

Where Bitcoin is called a bubble, it will often be accompanied by reference to tulips. This refers to one of the first bubbles in history: the Dutch tulip mania of the 1630’s, where prices at their peak reached ten times the annual income of skilled craftsmen (on the basis of their vivid colours).

Tulip bubble

A bubble will usually begin with a new invention or discovery and commence into a boom stage, then euphoria, then profit taking and finally panic (or the Minsky Moment) caused by a sudden collapse of asset values as everyone tries to sell.

The last time this happened was 2008 and the sub-prime housing crisis in America. This was a consequence of the bubble before it, the dot-com boom as technology stocks crashed and cheap money pumped the property markets.

Why Bitcoin Isn’t a Bubble

The irony is Bitcoin came from the aftermath of the last investment implosion (2008) and investors have come to like Bitcoin as a diversification from traditional asset classes, where they feel central bank quantitative easing programs are stoking new problems.

This means more people are now looking at alternative investments for growth. They regard cryptocurrency as the potential for sound money, immune from the corrosion of inflation.

Forbes contributor Naeem Aslam recently commented, the global audience for Bitcoin has become bigger than the audience for the world’s largest stock market (the US).

Bitcoin is the natural evolution of technology and considered by many the greatest innovation to happen to finance in decades - it has become money for the internet and the grandfather of all cryptocurrency. 

The fact Bitcoin’s supply is fixed at twenty one million means as the technology develops and gains traction, the price will continue upward. Just because the price is trading above $4,000, doesn’t mean it’s a bubble. Some of the ICO’s may suffer from speculative frenzy and some of the altcoins will no doubt die, but Bitcoin is here to stay and will always be undervalued.

Written by Jon Gulson @jongulson
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