Are cryptocurrencies in the bubble territory?
When you look at the 2 bubbles in recent economic history, one was the dotcom bubble in the 1990s and the housing bubble in 2000s. Cryptocurrencies have also risen in the last few years astronomical. This is creating fear among many investors as well as enthusiasts as to whether cryptocurrencies are heading into the bubble territory. The assets in the bubble do not end well.
When you actually look at the boom in cryptocurrencies over the past 12 months, you would realize that it has been immense and most of the cryptocurrencies have increased by more than 1000%. That is why most of the experts are actually wondering whether cryptocurrencies have entered a bubble territory.
The housing bubble resulted in bailouts of over $ 700 billion. Even though the dotcom bubble did not result in bailouts but it wiped out a lot of investor wealth. Moreover, the economy was also badly impacted by these 2 bubbles as well. Owing to these 2 bubbles, there were a lot of foreclosures as well as public protests and affecting politics as well. That is why, if at all cryptocurrencies are in the bubble territory, it would be very disastrous for the countries where most of the investors are located.
One thing which you have to, however, keep in mind is that the investors in cryptocurrencies are spread all over the globe. Owing to this very reason, the impact of cryptocurrency crash on an individual economy would be pretty limited. On the other hand, the above 2 bubbles which we spoke about were localized in nature that is they were constituted primarily in a single country. This is one of the main reasons why the economic impact was concentrated as well.
Moreover, we have a precedent of a global crisis as well in the form of 2008 financial crisis. That was also started by a single country and thereafter, its effects were felt all over the globe. Therefore, many of the experts are also thinking that since the investors this time around are spread all over the globe, the effect of the cryptocurrency crash would be much more drastic as well. Moreover, the amount of money which has gone into cryptocurrencies and also which is going into cryptocurrencies still is pretty huge. This is what is fuelling even more fear when it comes to cryptocurrencies.
It remains to be seen whether the value of the cryptocurrency continues to increase or whether it results in a bubble and crash. If indeed, it results in a bubble and crash, it remains to be seen whether the effects are spilled over to the formal economic system or they are confined to the cryptocurrency investors.
Tugba Kaplan - Tech Journalist
Tugba Kaplan is a journalist with more than 8 years of experience. She is an award winning correspondent. She has worked for Article 19 / The Guardian Foundation/ P24 Knowledge Right Project. She has participated in See Media Observatory in Macedonia. She was Research Fellow at Friedrich Ebert Foundation in Germany.