Are Crypto Bubbles Bursting? They May Be...
It is time to ask ourselves 'are crypto bubbles bursting?'.
The rise of Bitcoin (BTC -0.62%), Ethereum (ETH -1.23%), Dogecoin (DOGE 4.64%), and some other digital currencies has prepared the way for once-in-a-lifetime profits. For example, when Bitcoin topped $64,800 a token in mid-April, a $155 investment at $1 would have been worth nearly $1 million.
However, cryptocurrency has plummeted in value during the last two weeks. Some could call this a natural retracement following a monster run upward. Still, I'd like to refer to it as a popping bubble.
While many people feel that digital currencies are the best thing since the invention of chocolate, I believe the crypto market is collapsing for several reasons.
Some Governments Aren't Okay with Cryptocurrency
The crypto bubble is bursting because some countries are concerned about cryptocurrencies undermining their central bank-backed currencies. For example, China sent the cryptocurrency market into a tailspin last week when it announced that its banks and online payment channels would no longer be able to provide any cryptocurrency-related services.
However, it's worth noting that a significant amount of Bitcoin mining occurs in China. In this regard, China is far from alone. For example, Turkey recently passed legislation prohibiting the use of cryptocurrency for payment. Meanwhile, digital currencies are illegal in Bolivia, Ecuador, Nigeria, and Algeria. As a result of this trend, the global use case for cryptocurrency is becoming increasingly unlikely.
Centralisation is Still an Issue
One of the goals of cryptocurrencies is decentralisation. This was done to ensure that a network is not controlled by a single person or a small group. However, according to BitInfoCharts.com, ownership of Bitcoin and Dogecoin is relatively consolidated. For example, only 2,155 addresses control roughly 42% of all Bitcoin, and only 99 addresses control 66.6% of Dogecoin. As a result, people may recognize that these financial experiments aren't as decentralized as they should be.
The Real-World Utility is Minimal
A severe drawback of digital currency is that it is practically useless outside of a cryptocurrency exchange. Even though many well-known corporations or organisations have accepted Bitcoin or Dogecoin, the total number of businesses accepting either is still insignificant.
There is No Entry Barrier
My main issue with cryptocurrency, aside from its lack of utility, is that there is no entry barrier. Anyone with a computer or an innate desire to code can create a blockchain and, possibly, a tethered token. CoinMarketCap claims to have a database of around 10,000 different cryptocurrencies. While many aren't actively traded, the number of potential competitors to Bitcoin, Dogecoin, and Ethereum is staggering, with many more on the way. In short, the crypto sector is constantly being diluted by an infinite number of competitors.
There is No Identifiable Real-World Correlation
Another concern with crypto is that there are no obvious real-world correlations. For example, we know that gold and the US dollar have an inverse relationship. Gold is more likely to rise when the value of the dollar falls. This is a long-term relationship that has formed.
Bitcoin, Ethereum, and Dogecoin do not have these correlations. Crypto enthusiasts want to emphasize how crypto is a hedge against inflation. Still, they forget that the value of Bitcoin has fluctuated depending on how quickly or slowly the money supply expanded. Because cryptocurrency has no physical connections, it is fueled by emotion and technical analysis.
Over Leveraging Can Be Haunting the Crypto Market
Customers at some of the most well-known cryptocurrency exchanges will be able to multiply their account equity by 50 to 125 times. While this level of leverage is common in forex, where currencies move in fractions of a cent, it is absurd for cryptocurrency, which can swing 3% in seconds. According to data from Bybt.com via Bloomberg, approximately 887,000 accounts representing $9.4 billion in total crypto assets were liquidated on May 19 due to leverage-based margin calls. It doesn't take much for the crypto market to go south rapidly because of this tremendous leverage.
Investors Always Overhype New Tech
Finally, investors usually overestimate new technology uptake. Even though many people are enthusiastic about blockchain, it has been more than a half-decade, and the euphoria has yet to translate into actual enterprise use. Every next big-thing technology, including cryptocurrency, requires time to mature.
Author: Shelly Kay
Shelly is a content writer, blogger, and ghostwriter with more than ten years of experience. She is a top-rated seller on Fiverr, providing digital marketing content that increases search engine visibility making websites gain social media attention.