New bubble: the bitcoins market threatens millions of people

New bubble: the bitcoins market threatens millions of people

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Currently, the price of bitcoin is growing at a dizzying pace due to the increased demand for the digital currency. This fact worries many experts that predict a great collapse in the market. The exchange rate of the digital currency is preparing to beat a new record. Soon the bitcoin can go from $4,031 to $4,500.

Since August, the value of bitcoin has increased by 60%. Although this is not the first time the digital currency is revalued, many experts warn that something could go wrong in the market.

Compared to current growth, the previous promotions involved only a small number of users of the new means of payment. Now, the situation is completely opposite: millions of people are involved in the purchase and sale of this digital currency.

In recent years many people have started to actively acquire bitcoins. This high demand contributed to the increase in the market capitalization of the cryptocurrency.

Stock market capitalization is the total value of shares – in this case bitcoins – that are currently traded on the market.

Now the market capitalization of bitcoin reaches 68,000 million dollars, which corresponds to the capitalization of any of the companies of the Dow Jones index. This index brings together the 30 largest US companies.

Given that there is an increasing interest in bitcoin, many economists warn of the possibility of a collapse of this market.

The current situation is very similar to that in 1991 when Tim Berners-Lee – named the father of the global computer network – established the first communication between a client and a server using the HTTP protocol.

After this event, people quickly understood that the network could be used for commercial purposes.

Thus, in the second half of the 1990s the Nasdaq index began to associate with companies specializing in the internet connection, although it brought together all the companies operating in the high technology sphere.

It all came to an end in 2000 when investors could not support the protracted growth in the share prices of these companies. The Nasdaq index fell four times its value, reaching the level of 1995. A large number of emerging companies left the market after the crisis.

The current situation in the crypto-currency market is similar. At first only a narrow group of enthusiasts detected the first bitcoin hits, but now their advances are known by many people thanks to the media.

Richard Ternill, head of investment strategy at Black Rock, recently said that the situation on the Crypto-Currency Exchange is terrifying.

Meanwhile, specialists at investment bank Goldman Sachs predict that there will soon be a sharp drop in the price of bitcoin. They expect the price of the cryptocurrency to drop to $1,800.

Elliott Wave, son of the American analyst Robert Prechter, believes that the current hysteria with digital currency resembles the boom experienced in the tulip market in the Netherlands in the 1630s and which is considered as one of the first economic bubbles of the Modern history. According to wave theory, soon bitcoin may experience a sharp depreciation while its ‘clones’ would collapse to zero.

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I am a lecturer at the University of Economics in Bratislava, department of Banking and International Finance. I have a Ph.D. academic degree, my dissertation was focused on major markets. Commodities and stock markets are also the main focus of my research and publication activities. I have approximately 10 years of investing experiences. My investments mostly focus on small- to mid-cap companies of energy sector, financial and technology.

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