Bitcoin Price Crash: Reasons Why It Shouldn't Scare You
Will the increase in adoption in Russia, North Korea and Nigeria help drive up the demand for bitcoins and sustain its current price?
Despite the recent cryptocurrency massacres causing Bitcoin and altcoin prices to decline, Bitcoin, along with other cryptocurrencies, are poised to recover with rumors of its price potentially reaching $10,000.
Throughout economic history, potential bubbles have been the result of overinvestment and hype. When such crashes happen, unexpected outcomes may occur. There can only be a few people who have loaded up in the electronic currency and doubled their money before such a burst.
Bitcoin crash of 2013
In 2013, when Bitcoin price crashed, early Bitcoin investors had gained up to three times their initial investment. In the past few months, the price increase has reached up to 87 percent.
Bitcoin price has surged to $2,800 due to various factors, including the acceptance of cryptocurrency as a legal mode of payment, a stable growth in terms of international remittance services, among others.
Many have adopted Bitcoin as their mode of payment and it is already accepted by regulators as a legitimate way of investing. With its various potential consumer uses, Bitcoin may potentially become a mainstream asset. In fact, in some countries like Japan, Bitcoin is legally accepted as a method of payment.
Will South Korea, Russia and Venezuela keep the demand?
According to some Bitcoin market watchers, Bitcoin’s popularity will keep on increasing.
In a declining economy such as Venezuela, Bitcoin is also being used to purchase food from Amazon through a mediating company. Sadly, Bitcoin is also often linked to crime-related activities including cyber hacking with ransom demands, drug deals and even the promotion of prostitution.
However, last month’s 87 percent price increase is not a normal movement. Now, the next thing to consider is the possible damage it may bring if and when it bursts.
On one hand, the damage may not be that huge. While there are 16 mln Bitcoins with a total value of $35 bln, this is not yet a very large amount when we talk in the context of the global capital market.
Compared to the $805 bln market value of Apple AAPL, Bitcoin is not that significant in figures. Meanwhile, a company named Associate British Foods has almost the same worth as Bitcoin - yet its market didn’t crash when it burst out.
In addition to possible overinvestment, many companies will possibly misallocate their capital through investing in a trending investment system like Bitcoin. Last month, RSK Labs invested $3.5 mln for a smart contract in Bitcoin. Coinbase also invested $75 mln in a Bitcoin startup. Though some risks are uncalculated, investors would still undertake a business venture even it involves their capital fund. Looking into the nature of a bull market, you could always find more than one asset with prices that are soaring high. But the most intriguing part is the existence of an asset bubble which would be a “real sign” that the bull market is reaching its peak. It is this scenario in which the market is expected to crash. Nevertheless, even if Bitcoin does burst, the damage may not be that bad. However, it’s still money and its loss could still affect others.
Time to look at other cryptocurrencies?
From 2011 to 2014, there have already been three crashes in the Bitcoin market and it has fallen almost 50 percent every time. Other digital currencies such as Ethereum and Ripple are also experiencing the same ups and downs as Bitcoin. While some are skeptical about the use of digital currencies, the bursting scenario is something that we have already anticipated.