Crypto Bubbles: Identifying Overheated Markets

Bubble is a situation where an asset trades at a price that exceeds the intrinsic value of that asset.

What is bubble?

For years, commentators have stated that cryptocurrencies (and especially Bitcoin) are a bubble. They imply that the price of a given coin or digital assets in general is much higher than their “real” value. In fact, many cryptoskeptics believe that the real value of most cryptocurrencies is zero. Concerns about a potential crypto-bubble peaked in 2018, at which time the market capitalization of cryptocurrencies surged. At certain points, the total market volume of all cryptocurrencies reached $800 billion – despite the fact that it is widely believed that it is impossible to determine the true, intrinsic value of cryptocurrencies.

The rebuke of the cryptocurrency bubble is often based on the belief that the sole purpose of cryptocurrencies is speculation. However, the uses and uses of cryptocurrency are growing by the day, and crypto-enthusiasts argue that the technology and related tokens will be proven to have real value.

Ethereum may be a prime example of this – not only does it provide a currency on which to speculate, but it is also the basis for an entire ecosystem of decentralized financial and computing services. The growth of decentralized finance (DeFi), according to many, is proof of the real utility of cryptocurrency. DeFi proponents are using blockchain technology to create alternatives to traditional financial products such as credit and insurance, and many believe this trend points to the real future of decentralized technology.