There are a few tell-tale signs that the digital currency market is back in a bubble, or as others might be calling it, a bull market. Since September, the digital currency markets have been steadily climbing, with new money pouring into the sector from corporations and institutions, coins and tokens that have no real utility or use-cases are hitting two-year highs, and friends are sending me text messages asking if XRP is a good investment. Although the bubble can be exciting, I am not convinced that the euphoria will last for long– here’s why.
What warrants this growth?
As you have probably seen, prices across the digital currency markets are up–but why? Keep in mind, a majority of coins and tokens are not like BSV, meaning that they do not have developers building on their blockchains, they do not have low transaction fees, and enterprises cannot implement them into their business operations to reduce costs while increasing transaction speeds and enabling micropayments.
When we take that into consideration, I believe there are two main reasons the digital currency markets are pumping:
- The digital currency markets are pumping because many people expect the US dollar to lose value in the near future.
- Because digital currency investors are speculating on new market participants entering the space and investing.
Both of these reasons are playing out in front of us. Many people believe the United States Fed is going to have to print more money due to the damage the coronavirus shutdowns have done to the economy as well as the second coronavirus shutdown that is looming. With that in mind, goods, services, assets, and commodities priced in U.S dollars will increase in value because the dollar is losing value. So it makes sense that digital currency prices are rising. However, this shouldn’t equate to many of the digital currencies people have written off as useless pumping… but it has. So why?
Because digital currency investors are speculating on new market participants entering the digital currency sector and investing… and so far they have been correct. But instead of the new market participants investing in the digital assets that have fundamental value, they are opting for the cheapest digital currencies they can get their hands on. This is because new market participants do not have the knowledge that long time digital currency supporters have, so the coins and tokens that are laughable to us, seem like low-cost, low risk, high reward, investments to them. In addition, there is a good chance they don’t have tens of thousands, even thousands or hundreds to spend on digital currency, which makes tokens that are $0.20 extremely attractive to them.
However, this game of greater fool will come to an end eventually.
So what happens next?
The longer you have participated in the digital currency ecosystem, the more you know about what will (probably) happen next. With all of the media coverage digital currency markets are getting, and all of the corporations, institutions, and celebrities buying in and then posting on social media about how they’ve bought digital currency, more air will fill the bubble.
So who thrives in this type of environment?
1) Those who invest for the long-term in a blockchain with a stable protocol and scalability, and
2) those who knowingly gamble on the cheap coins and tokens in the market, but make sure they are not the last ones holding the bag.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.