bitcoin bubble Archives

Bitcoin’s recent price surge has many investors wondering if the cryptocurrency is in a bubble period. Could a crash be imminent, or is bitcoin on its way to widespread adoption? While media outlets portray bitcoin as an overhyped technology ready to collapse, research shows a different set of factors at work. Bitcoin is gathering speed and traction across all industry sectors. It’s well past the bubble phase, rising into a phase of increasing growth — a period the Gartner Hype Cycle calls the Slope of Enlightenment.

What is the Gartner Hype Cycle?

The Gartner Hype Cycle is a research methodology that predicts how a technology evolves over time. Businesses use it to determine when an emerging technology will become commercially viable and sustainable over the long term. The cycle consists of five phases:

Innovation Trigger
Peak of Inflated Expectations
Trough of Disillusionment
Slope of Enlightenment
Plateau of Productivity

Emerging technologies begin with a breakthrough that triggers development (1). Next, they enter a bubble period in which publicity creates overinflated expectations (2). As the technology fails to live up to the hype, it falls into the Trough of Disillusionment (3). Less committed investors and producers fail out of the sector, while others persist. The technology improves and becomes better understood. More applications emerge and some companies begin to adopt the technology (4). Successful cases prove the technology’s relevance and viability, resulting in mainstream adoption (5).

Bitcoin: Phase 4

Understanding bitcoin’s place in the Gartner Hype Cycle is important for investors and businesses alike. The Gartner methodology provides a strategic tool that lets us peer into cryptocurrency’s past and see what’s coming next.

Evidence indicates that bitcoin has passed the dangerous phase 2 bubble and is well into phase 4, the Slope of Enlightenment. Gartner defines this phase as follows:

Slope of Enlightenment: More instances of how the technology can benefit the enterprise start to crystallize and become more widely understood. Second- and third-generation products appear from technology providers. More enterprises fund pilots; conservative companies remain cautious.

This is an accurate description of bitcoin’s current state. We’ve seen businesses across every industry sector dipping into bitcoin as they begin to realize its benefits. Blockchain technology is improving and becoming increasingly refined. Finally, while some companies remain skeptical, an increasing number are investing in blockchain-based technologies.

Bitcoin’s Industry Impact

Bitcoin’s impact on industry is growing as more companies adopt it as a payment method and integrate blockchain into business processes. Hundreds of thousands of retailers in Japan have already announced bitcoin acceptance. Major global brands now accept bitcoin as a form of payment for their services or goods. Investors are choosing bitcoin as a long-term value store and retirement investment. CME Group Inc. has even announced a bitcoin-based futures contract.

Meanwhile, enterprise applications of blockchain technology are reshaping businesses. Global shipper Maersk recently tested a blockchain-based solution for storing shipping data and reducing costs. Walmart has teamed up with IBM to explore how blockchain can improve food supply chains and safety. Even central banks, previously skeptical of bitcoin, are beginning to realize how they can use its technology to streamline their operations.

Bitcoin and its core technology already has foundational support among major corporations, and blockchain adoption is well under way. To put it in Gartner Hype Cycle terms, we’re at the stage where “More instances of how the technology can benefit the enterprise start to crystallize and become more widely understood.”

Evolving Blockchain Technology

Gartner’s Slope of Enlightenment predicts a refinement of the original technology in conjunction with its increasing prevalence. We’re seeing this as well. Bitcoin’s developers constantly update the cryptocurrency to optimize its performance, including adjustments for better scalability. These adjustments offer more highly developed iterations of bitcoin and its underlying technology.

The distributed ledger technology (DLT) that powers bitcoin is also evolving. For example, Hewlett Packard Enterprise is offering large-scale blockchain implementation for enterprises to transact with each other – a project they’re referring to as “blockchain 2.0.” This blockchain is built from the Corda ledger, developed by financial consortium R3. Over 80 banks and financial organizations contributed to R3’s development of the new distributed ledger system.

DLTs and software updates show how the ecosystem has changed since bitcoin’s inception. Each transformation brings improvements, which in turn increase bitcoin’s viability. The second- and third-generation technologies we’re seeing today prove that bitcoin is built on a solid foundation that supports continued growth.

Conclusion

In financial markets, a bubble is defined as a price surge driven solely by market exuberance with no support from fundamentals. That’s not the case with bitcoin in 2017. On the contrary: Bitcoin’s price surge has robust fundamental support in the form of widespread industry adoption and technological development. Blockchain technology is becoming an integral part of business operations. Bitcoin is becoming widely accepted as a payment method and a legitimate investment asset. Furthermore, bitcoin itself is improving through rigorous software updates.

These traits position bitcoin squarely in Phase 4 of the Gartner Hype Cycle. As bitcoin ascends the Slope of Enlightenment, Gartner predicts increasing success until a breaking point at which mainstream adoption takes off. This could happen soon. Bitcoin’s market relevance has already been clearly demonstrated. It’s only a matter of time before bitcoin reaches a Phase 5 level of full integration and sustained productivity.

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Bitcoin has seen incredible growth in 2017, rising nearly 400 percent over the course of the year. The digital currency also reached an all-time high value of over $5,000 at its peak. This meteoric rise had many critics crying, “bubble” while other experts predicted it to be only the beginning. This month, speculation about China shutting down Bitcoin exchanges brought about hysterical sell-offs and the price dropped below $4,000.

Further shaking the nerves of investors, JP Morgan executive, Jamie Dimon called Bitcoin a “fraud” that is “worse than tulip bulbs.”

Antiquated references aside, Dimon and critics are missing the central purpose of Bitcoin that makes it an investment that’s not going away. Here are the top reasons why Bitcoin is not in a bubble and a price drop equals a prime time to buy in.

The Real Bubble May be Traditional Banking

The average person holding money in a traditional savings account will never earn enough in interest to keep pace with inflation. While account holders are enjoying nominal returns, Centralized Banks charge much higher interest for loans and credit cards. It’s near impossible to live in today’s world without debt like a car loan or mortgage. The average interest rate on a savings account hovers just above one percent, while the interest on a credit card can soar above 20 percent. The math just doesn’t add up for account holders. Gain one percent to lose 20 percent. Traditional savings accounts have no real store of value for investors.

Those declaring that Bitcoin is in a bubble would do well to note that stocks, bonds, and real estate are all in a bubble. What’s more, so is the U.S. dollar. The value of these items is manipulated by central banks and investment firms. The 2008 subprime housing market bubble acts as the towering example of how traditional markets can experience devastating crashes.

The math of the dollar debt for investors continues to work against the favor of the average investor.

And Bitcoin is the Better Long-Term Store of Value

By design, Bitcoin was made to be a better store of value for both long-term investors and those using it for payment. Traditional fiat currency has no cap to the amount of bills and coins that can be created. In Venezuela, unchecked printing of money lead to inflation rates that rendered the local currency to be all but worthless. The United States and other countries around the world may be battling inflation at a lower and slower rate, but the problems remain with no solution in sight.

In contrast, Bitcoin has a cap of 21 million coins. There will never be any more created. Currently, there are just over 16 million Bitcoins in existence and it is estimated that the last Bitcoin will be mined in the year 2040. The limited supply means that Bitcoin’s inflation rate will remain minimal until the last coin is mined. When that day comes, inflation will cease altogether.

Blockchain Technology is Growing in Adoption

The aforementioned 2008 financial crisis is the reason Bitcoin exists – Satoshi Nakamoto saw a better way of handling currency; one free of the manipulation and corruption of the traditional market. Bitcoin is a better store of value because it is decentralized from such agencies. Blockchain technology provides transparency unparalleled by any other currency. The blockchain ledger is open source and every transaction is visible to the world. There’s nowhere to hide in such an open form and that protects Bitcoin from corruption.

The value of Blockchain technology has not gone unnoticed by innovators and investors. Not long after Bitcoin first launched, new cryptocurrencies took the concept of Blockchain and sought to improve it and expand the use case scenarios. Ethereum added smart contracts; Ripple created an open exchange network that worked with financial institutions; and the list goes on. As Ripple has shown, even traditional banks have not been able to ignore the implications of the Blockchain. It’s only a matter of time before the technology reaches widespread, global adoption.

Decentralization, limited supply, and the Blockchain make Bitcoin the easy winner for long-term investment potential.

Wall Street’s Criticism of a Bitcoin Bubble Falls Flat

JP Morgan received a $13 Billion government bailout after the financial crisis of 2008. The government had to bail out banking institutions from their own subprime investments. Jamie Dimon’s role as CEO of JP Morgan during the financial crisis makes his criticism of Bitcoin as a “fraud” becomes wildly hypocritical and ironic.

What’s more, the criticism is tone deaf in understanding of Bitcoin’s central purpose. Bitcoin eliminates the middleman, i.e. banks, and provides a means to safely transfer money directly from one individual to another. Decentralization is one of the tentpoles of digital currency and investors are using it as a long-term investment to hedge against the endless inflation of the dollar and corruption of banks.

Naturally, decentralization threatens banks and financial institutions. One can hardly blame them for laying criticism against something that threatens their model of business and profit margins.

The Bottom Line

Most experts agree that Bitcoin will continue to grow in value. Fluctuations are a natural part investment and low points merely provide opportunity to purchase Bitcoin at a better price. Predictions for Bitcoin’s growth range from reaching $100,000 in ten years to reaching $500,000 by 2030.

Bitcoin is not a bubble and cryptocurrencies are here to stay.

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