Is the “Bitcoin bubble” bursting already?

Values are dropping, Investors are anxiously watching their portfolios, panic arises. But don’t worry, most of the common shares publicly traded at the moment won’t crash – for now. It’s the Bitcoin that scares the hell out of some investors and analysts at the moment.

What is happening?

Well let’s take a look on Bitcoin’s price development to clarify and remember, that cryptocurrencies are still highly speculative and volatile in their development.

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In Mid June, the Bitcoin euphoria reached it’s all time peak, depicting a price per Bitcoin of nearly 3000 USD. Everyone was very excited about Bitcoin and predicted a tremendous development and wide acceptance.

And now?

The price per Bitcoin dropped to a value below 2000 USD as of today. The euphoria? Gone. Let’s put some numbers in this. Compared to the price of 3000 USD as of the 11th of June this means a loss of about 35% which expresses in a decline of market capitalization of about 15 billion USD. The short time period of only a month shows the extreme market dynamics inherent to Bitcoin.

That sounds scary. Well it is, but it it’s still no reason for big sorrow. It was more or less predictable that this development of price would occur when dealing with a digital, somehow overhyped currency with now substantial value. But as the past shows, and as the major number of specialists predict, the Bitcoin will vary around a certain median of roughly 2400 USD and not plummet into a bottomless hole. Still, you should be kind of a risktaker and be aware of the prices 24/7 if you want to realize major short term earnings with bitcoin.

A thing that could probably be more of interest for Investors and may make them feel a little uncomfortable is the future technical development of Bitcoin, that is to say the way it will be traded.

It has been announced that from the 1st of August on, more transactions per block should be possible. That will be realized by an update in the basis code of the Bitcoin blockchain. The reason behind that is, that, induced by the high demand and popularity, the transactional capacity of the Bitcoin network reached it’s peak. Smaller transactions now even may take days because the number of transactions per block is limited to 3000.

How should this be done? Well there are two approaches:

Approach A aims to minimize the transactional volume of each transaction, to fit more of them onto one block. The software update necessary to do that will be framed into a “soft fork”. Soft fork means, that computers using old software will still be compatible after the software update. Of course there is a fancy name for that, too. “SegWit” or “Segregated Witness” will be the title of that concept. The people supporting this approach form a group which is commonly referred to as “Bitcoin Core”.
Approach B wants to enhance the capacity of a block in the blockchain from 1MB to 2MB.  The group behind this idea names as “Bitcoin Unlimited”. As the name implies, this is the more radical concept. Expanding the capacity from 1 to 2MB will require a so called “hard fork” (for more information and an example for a hard fork please refer to the Ethereum article previously published in my blog). Everybody who wants to continue using Bitcoin software is forced to execute the update. The implication of the hard fork is, that everyone will receive “new” Bitcoin in the amount of Bitcoin he or she already owns. The “old” Bitcoins will then grow worthless when the new fork e.g. the new blockchain launches.

Well, if that ain’t scary I don’t know what is.

There is another approach striving to combine A and B, but the most realistic scenario is, that “SegWit” will launch as of the 1st of August.

In the long run, the optimization of the transactional network definitely makes sense in terms of practicability and smooth operation. Short term, it predominantly feeds fear and uncertainty among investors and other stakeholders.

To answer the question from the beginning, no the “Bitcoin bubble”, if there is any, won’t burst. We are still at the very beginning of cryptocurrencies, market and development are far away from being saturated. Nonetheless, major fluctuations will occur in the future and for the next few years, CC’s will remain highly volatile investment instruments.
So my advice here is, invest now as it is comparably cheap and then take some sleep pills and don’t look on the price chart for 10 years (Warren Buffet style ;)).

Stay curious!

Kind regards

Luca

 

(Header picture source: https://www.google.de/search?q=bursting+bubbles&client=firefox-b&tbm=isch&source=lnms&sa=X&ved=0ahUKEwitrb_73o3VAhWDZ1AKHfQWDPcQ_AUIyQEoAQ&biw=1440&bih=713#imgrc=xtngfCaHmY2YrM🙂


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