Bubbles simply describe a financial situation in which the price of an asset increases well beyond its intrinsic value. Like any other bubble, financial bubbles have no end but to burst, bringing the price down to the true value.
Financial bubbles tend to be tricky and unpredictable but typically go through five stages: displacement, boom, euphoria, profit-taking, and panic. Dotcom Bubble, also known as the internet bubble, is a good example that was formed in the late 1990s as internet-based companies gained mainstream popularity.
Crypto Market: Boom or Bust?
Before getting into the main question, we need to understand one of the main traits of bubbles: They are not the easiest market conditions to spot.
A few years ago, Vikram Mansharamani, a lecturer at Harvard University and the author of “Boombustology: Spotting Financial Bubbles Before They Burst”, applied his framework to determine whether Bitcoin is a boom or bust.
Vikram’s framework consists of 5 lenses that will provide a “probabilistic assessment of a forthcoming bust.” He analyzed the relationship between Bitcoin’s price and increased demand, Bitcoin’s fixed supply compared to the unlimited supply of fiat currencies, its role as a “new currency”, its position among authorities and governments, and its potential adoption.
Vikram concluded his analysis by stating that:
the stage may be set for it to become a bubble, but it doesn’t appear to be one yet. It may one day become a full-blown bubble with high bursting risk, but the evidence doesn’t suggest we’re there yet.
Even though things have changed significantly in recent years, Vikram’s analysis gives us an idea of the areas we need to look at if we’re looking for a bubble. However, one thing to remember is that Bitcoin is only one crypto asset (the biggest one, we might add) within the crypto market and we need to consider the market as a whole to see whether there was a bubble or not.
With that in mind, just one glance at the crypto market is enough to come across a handful of crypto projects that literally have nothing to offer. They are highly speculative and add no value to the ecosystem. Their non-existent roadmap leads them to the final end of annihilation, taking users’ money with them and inflating the crypto bubble scenario greatly.
On the other hand, we have various crypto projects with a strong background and real-life applications that are relatively undervalued. Additionally, some blockchain-based innovations, like NFTs and GameFi are just finding their place within the market and simply need time to adjust to users’ needs and show their true potential.
All things considered, we can say that the answer to the million-dollar question is not a simple “Yes” or “No”. But one thing is for sure: just like the internet, the technology behind cryptocurrencies is indeed “The New Thing”; something unprecedented with bright horizons that we believe is here to stay.
Crypto Crash: Collapsing Business Plans With a Flavor of Stagflation!
Frankly speaking, the world economy looks quite gloomy these days. After the Covid-19 pandemic and the Ukraine war, it seems like we’re all waiting for the other shoe to drop. In a situation where the stock market is in red, inflation is rising rapidly, and the silhouette of stagflation is slowly shadowing the scene, the crypto market had to weather two major crashes within just one month.
Luna and Celsius’s crash once again highlighted the need for proper customer protection and a comprehensive regulatory framework. But despite all, here’s the silver lining in these crucial times: the crypto market is surviving an economic crisis while shedding out the weaker parts of itself and evolving into the great promise it was built on.