Are Cryptocurrencies in a Bubble?

Well, as of today – mid-September 2018 – cryptocurrencies are not in a bubble. However, back in 2017, the market was in a state that many investors and participants would call a bubble. If it indeed was a bubble, and it probably was given the astronomical pace at which some coins expanded, then it has already burst, and today we found ourselves in the stabilization phase.

Everyone sees the market declining and sticking to a long-term bearish trend, but many crypto investors are afraid to call it a bubble burst. In reality, the crash from this year has all the attributions of a bubble crash. Think about it – on September 12, the crypto market cap fell to the lowest level since November 1, 2017. It means that the market has lost all of it gains accumulated in almost a year! Isn’t it a bubble burst? The crypto market picked this year at $800 billion, and these days it was trading below $190 billion – it has lost about 80% year to date.

If you are not convinced this is serious enough, think about the fact that the NASDAQ index declined by about 78% back in 2000, when the dot-com bubble burst, and yes – the dot-com is viewed as a bubble, and it burst within a year. So, if we compare the crypto market with the NASDAQ index, which focuses on the US tech companies, we can see that the crypto market behaved even worse than that, as the bullish trend was drawn within months rather than years.

Bloomberg recently discussed both markets side by side:

Chart by Bloomberg

When the crypto market was losing billions in several days after some bad news from the SEC or hacking attacks, the market participants were hoping that it was the bottom and that the market would start recovering soon. However, week after week, the downtrend went on without any convincing signs that it intended to reverse. Now, people realized that the whole thing was, in fact, the bubble bursting.

In that Bloomberg post, Neil Wilson, an analyst at Forex and CFD trading services provider Markets com, commented:

“It just shows what a massive, speculative bubble the whole crypto thing was — as many of us at the time warned. It’s a very likely a winner takes all market — Bitcoin currently most likely.”

Crypto’s 80% Plunge Is Now Worse Than the Dot-Com Crash

Ok – the Bubble Burst – so What’s Next?

Now some people might want to know – what’s next? If the crypto bubble burst – is it over? Will Bitcoin die until losing all of its value? Well, of course not – Bitcoin is powered by blockchain, which means it can’t disappear because of hyperinflation or deflation – it just stays in its blockchain box, and there will always be at least some demand for it. As for the crypto market as a whole, why not checking how the NASDAQ index behaved after its crash?

NASDAQ chart

Well, it didn’t die – actually, it updated its peak after several years. At this time, the tech companies are backed by strong fundamentals. Many companies disappeared during the dot-com bubble, but some of then survived and became the Google, Amazon, and Facebook we have today.

The same happens with the crypto market – it matures and stabilizes. And nothing really is affected, except for the investors who lose funds during the decline.


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