People learn from history. Many leading economists and prominent figures in the financial world view bitcoin as the next economic bubble that can blow off any minute. Remembering the economic crisis of 1990s or that of 2008, modern preoccupation with cryptocurrency bears similar characteristics as the dot-com and the housing bubbles. Nowadays, we see the increase in prices for cryptocurrency and individuals and organizations pouring millions of dollars into various cryptocurrencies. What most economists are preoccupied with is the absence of any intrinsic value of cryptocurrencies. Let’s consider the following facts:
- The price of cryptocurrency is driven solely by demand, which makes the whole cryptomarket extremely volatile;
- Cryptocurrency transactions are completely anonymous, which opens room for money laundering and other kind of fraud;
- Cryptocurrency is unregulated. Unlike fiat money the supply of which is regulated by the central bank, with cryptocurrency there is no centralized place for monitoring and regulation.
- Some governments already start blocking cryptocurrency mining and trading;
- Cryptocurrency mining requires huge energy expenses, which is bad for the environment.
At the same time, a huge interest to bitcoin and other cryptocurrencies among investors remind the historial raise in investments into housing market due to low mortgage interests. By trying to buy low and sell high, many investors are already in the tricky position. And the cryptocurrency prices keep falling.
Cryptocurrency and Blockchain Technology
All things considered, the value of cryptocurrencies is in their demand. However, there is something else behind cryptocurrency that lead the economists to stop on their way to claiming cryptocurrency as s bubble. Blockchain technology has already proven to be useful in many fields of life. Companies and influential investors spend millions on investing in the development of blockchain-driven software. The Silicon Valley of 2000 spurs in mind when thinking about cryptocurrency and blockchain. When all the Silicon Valley fortunes got lost in one night, the Silicon Valley itself came out bright and shiny.
The same thing can happen to cryptocurrency. In case it appears to be a bubble as predicted, individual investors, businesses and organizations will suffer heavy losses. What also has to be considered is that, despite the worldwide interest to cryptocurrency, the world still does not know who created it and with what purpose. Was it a tool for undermining financial system? Was it created as a means of anonymous money transfer and money laundering? Until the initial purpose of bitcoin creator is known, it is difficult to predict what will happen to it.
If cryptocurrency does prove to be a bubble, the expectations of many people will not be justified. However, if it does not, we may hope to see the dawn of the new Internet and new technology in the nearest decades.