The value of Bitcoin has just plummeted by a massive amount after an almost meteoric rise over the past few months.
The bubble, which has showed no signs of slowing, has just begun to pop after its value lost a huge chunk over a matter of hours.
The industry disruptive cryptocurrency declined more than $2,000 dollars in the span of just a few hours on Wednesday.
The drop is one of the sharpest in recent memory, and it serves as a potent reminder of just how volatile Bitcoin really is.
The value was soaring in previous weeks and days, even peaking at $11,000, its highest level, according to CNBC.
Since then, Bitcoin has crashed below $9,000 on at least one exchange, but is showing some signs of recovery and is stabilising as of the time of writing.
In spite of such a decline, the online currency is still worth more than it was this time last week, when its value was at around $8,000.
This crash gives a great deal of validity to the claims of the Bitcoin sceptics who argue the rise of the value of Bitcoin is nothing but a bubble.
They largely argue that because Bitcoin isn’t a standardised, or even widely accepted currency, its value will be short-lived and unstable.
The legitimacy of the behemoth cryptocurrency is still uncertain, though Bitcoin is starting to make its way into hedgefund portfolios.
Currently, one single Bitcoin is worth more than seven ounces of gold, though as we’ve seen, this might change in the coming weeks and months.
A bubble is a massive increase in price of any asset or market which massively exceeds the actual value of the commodity.
Think of the housing market, the value for which continues to rise despite downturns in economic activity in other sectors of the economy.
The difference with the housing market bubble is that there doesn’t seem to be any visible signs of it popping, likely due to the relative stability of the need for houses.
The same can’t be said of the currency, as the recent downturn indicates.
This might not always be the case, however, as the Chicago Mercantile Exchange is planning to launch Bitcoin futures in December.
A futures trade is a trade of a standardised commodity with promises on delivery time and with a standardised price.
Neil Wilson, senior market analyst at ETX Capital, told The Guardian:
The legitimacy this gives Bitcoin as a tradeable asset is very important. The market cap of Bitcoin now exceeds that of IBM, Disney [or] McDonald’s…
But for traditionalists, it’s hard to fathom. Rather than a commodity or currency, Bitcoin is like owning stock in a company that will only ever issue 21 million shares and never pay a penny in dividends.
The only way it has value is if the next guy is willing to pay you more for it – the greater fool. With no intrinsic value to bitcoin, it’s hard to see this as anything other than a giant speculative bubble.
Only time will tell whether the currency is going to stabilise in the coming months, or whether another cryptocurrency will rise to take its place as the de-facto online currency of the future.
