Bitcoin? Asset Bubble?
The rise of Bitcoin over the past couple of years has been nothing but astounding and dramatic- moving from the darker corner of the web to mainstream, there has been an exponential rise in the value of Bitcoin. The problem with the cryptocurrency is, that a large part of the rise is still derived from short-term speculation, with a significant portion of investors not fully aware of the intricacies with trading the cryptocurrency or even about the mining aspect to the asset. The hype surrounding Bitcoin reminds me very much of technology stocks in 1999. Lots of investors were trading in a similar fashion to Bitcoin now: looking for large, short-term gains in assets that supposedly just justify their valuation. To summarise, in the short term, we could be in an asset bubble.
This could come to a crescendo on July 21: this is when from a technical perspective, also called the ‘hard fork’, the crypto could be split; with two different ways on how to handle transactions, clearly nobody knows the outcome. But with this large uncertainty hanging over Bitcoin and a large amount of short-term speculation, these two factors could definitely lead to a deflating of that asset bubble, maybe not in the long term, but certainly in the short term.
Comparisons between Bitcoin and Ethereum are made a lot at the moment, which I think is a mistake and shows the ignorance surrounding both in general. Firstly, most assume Ethereum is another cryptocurrency – it’s not, it’s actually a platform for running decentralised apps, colloquially know as smart contracts. Secondly, the total ever amount of Bitcoin’s in existence is limited to 21 million, whilst Ethereum is unlimited.
In my opinion, at the moment, a large amount of speculative trading is focused on Bitcoin, as Ethereum is a more complex asset & less well known, the community is smaller, so price action is dominated more by developers than speculators. I expect this to change in the near term, so there could be a rerating of the value of Ethereum.
Jordan Hiscott, Chief Trader
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