October 25, 2017
Cryptocurrencies are hot investments these days, particularly Bitcoin and Ethereum, and people are scrambling to get in on this new thing that seems to be making millionaires overnight. The moment that Bitcoin hit an all-time high of $6,000 in October, and showed no signs of slowing down anytime soon, people sat up and took notice. The popularity of digital currencies suddenly skyrocketed and even other virtual currencies are seeing an upswing in value because of the increase in Bitcoin’s value.
While a lot of people are beginning to invest in these digital currencies and are already imagining stellar profits from the increase in value of such investments, not everyone is convinced that this kind of a trajectory will continue for a long period of time. There are even predictions that a painful crash is in the offing and cryptocurrencies will go the way of the many investment bubbles that have occurred in the past. These past burst bubbles are what keeps some people from jumping on the Bitcoin, Ethereum, and cryptocurrency bandwagon, and here are some of them to show you why:
Dot-com Bubble – there is probably no technology based investment upswing and downswing more pronounced and memorable than that of the dot-com era. It began in the late 1990s and came crashing down in the early 2000s, which means it did not even last a decade. This bubble can be attributed to the fact that people were very enthusiastic to invest in something new such as the internet and the market it represented, and this without even finding out whether or not such internet companies (the dot-coms) would make a profit in the end. When these companies started to show signs of failing due to lack in profit (surprise surprise!), the NASDAQ Composite began to take a hit, dropping from its 5,000 perch to a dismal 1,000 by the end of 2003.
US Housing Bubble – another bubble that people in the US can easily remember is a recent one as well, and this is the one that ushered in the 2008 recession. It has been said that this rise and fall can also be attributed in a way to the dot-com bubble since investors who pulled out of the technology investment game moved their sights to real estate. While real estate is indeed a more stable and safer asset class than technology in some ways, this does not mean that it is immune to such crashes as well. The crash of the real estate market, and subsequently the economy of the entire world, is due to the careless and unchecked selling of properties and investments to people who are less than able to cover the cost of these homes.
These two are just examples of why some people are now wary of investing in the cryptocurrency trend of late. While there are people who say that this will be nothing like the bursting investment bubbles of the past few decades, there are a few that say it is only a matter of time. There are even financial experts who say that it is just waiting to happen since cryptocurrencies are not “value-producing assets” and have no intrinsic value. Whether it does or does not burst is something investors and non-investors alike will all have to wait and see.