Earlier this year, Michael Bury, a legendary investor, posted a tweet that he deleted immediately. The tweet detailed how people believe bitcoin is in a massive bubble and that the inevitable downfall is going to be spectacular. He also gave an opinion on Dogecoin, Tesla, and cryptocurrencies in general.
Also, Michael Harnett, the securities chief investment strategist at Bank of America, stated in a note that Bitcoin might be, “the mother of all bubbles.” His argument was based on how fast the price of Bitcoin is rising.
Well, why are these statements wrong? Here are some reasons why Bitcoin and other cryptocurrencies will stand the test of time:
Digital money is gaining popularity
At the center of this is the impact of the coronavirus pandemic. This has resulted in traditional investments such as property, bonds, and savings being less attractive. Investors are moving more towards stocks and gold which align with the digital economy. Concurrently, there has been a dramatic increase in online shopping with cashless payments. There's much more interest in and adoption of Bitcoin and other cryptocurrencies as merchants accept them as payment methods.
Central banks, for example, the US Federal Reserve, Bank of Japan, European Central Bank, the Bank of England, and Swiss National Bank, are in the process of developing their digital currencies. This is encouraging the adoption of digital currencies as well.
Additionally, stablecoins are making cryptocurrencies more usable because their value is pegged on the USD. Applications such as Paypal payments have already enabled payment with Bitcoins.
Al these trends show that Bitcoin and other cryptocurrencies are sustainable and not just a bubble.
More Mature Technology
The technology behind cryptocurrencies has matured a lot. Also, the trend is continuing as more innovation is carried out regularly to overcome the shortcomings of the current technology.
One of the biggest challenges for Bitcoin and other cryptocurrencies is the amount of energy that's needed for mining as well as carbon emission. However, the proof-of-stake mechanism introduced by Ethereum is a technical upgrade solving this. Hence it allows more people to join the crypto environment without such concerns.
Decentralized finance is one of the Blockchain technologies introduced for use in the financial sector. They include DEx, derivatives trading, decentralized fundraising, and decentralized lending. These innovations are turning the financial markets into a digital and automated space. All these are made possible through the use of Blockchain and cryptocurrencies. Further proving that cryptocurrency is not a bubble.
Institutional Investors
Finally, more institutional investors are seeing the value of cryptocurrencies and are investing in them. According to a recent CFRA research, coinbase (a popular crypto exchange) could surge by 22% to realize a price of $400 per share within the next year because of the buy-in from the institutional investors.
According to a JPMorgan research report, even though the highest percentage of institutional investors are yet to invest in cryptocurrencies, they agree that cryptocurrencies are here to stay.
Conclusion
All these developments; increased use of digital currencies, recognition by central banks, innovation and more developed technology, and recognition from institutional investors show that cryptocurrency is not a bubble. No bubble will burst any time soon.
