Is Bitcoin in a bubble?

According to Investopedia.com, a bubble is ‘an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive sell-off occurs, causing the bubble to deflate.’ According to this definition, Bitcoin actually was in a bubble in the beginnings of 2018 - as indeed, the price surged exponentially in December 2018, and then slowly decayed to an equilibrium where it fluctuates since April. In other words, we just experienced a bubble, therefore Bitcoin is not in a bubble anymore.

However, it is all not that simple. This definition of a bubble only touches the surface, as it does not take into account the relation between current market value of an asset and its real value. When we look at Bitcoin’s history, such explosions in the price, followed by slow deflation, were happening with a great regularity. However, does this mean that the price will continue growing in worm motion just as before? What is the real value of one Bitcoin?

The answer to this question relies on faith in the future of Bitcoin. What is the dream scenario? The primary goal of Bitcoin as a project, is to provide with a global monetary system alternative to traditional, government-issued currencies (and under the assumption that Bitcoin will not be replaced by another, better currency in the meantime). In case the Bitcoin venture becomes globally successful, Bitcoin could technically replace all the government-issued cash and digital currencies circulating in the world. How much is this? According to the Business Insider, the total amount of money in checking accounts, savings accounts and money-market accounts can be anything between 5 and 80 trillion USD. Pessimistically assuming the lower band of 5 trillion USD, and the full 21 mln BTC in circulation (which is not the case), it yields 238,000 USD per BTC. Optimistically, taking upper band of 80 trillion USD, it yields 3.8 mln USD per 1BTC. How probable is this scenario though?

Most probably, Bitcoin will never become the only digital currency, but will need to share the market with other currencies developed for more specific purposes - such as, for example, native tokens developed by online video game platforms. Furthermore, there are three possible scenarios for today’s cryptocurrencies, including Bitcoin:

• cryptocurrencies becoming the mainstream payment method
• cryptocurrencies forbidden by most of the central banks and marginalized
• Bitcoin and other current top cryptocurrencies replaced by new, more technologically advanced solutions

The probability of each of these scenarios is hard to estimate. Many analytics compare the current situation to the dot.com bubble in 2000-2002, when speculatory market around young internet companies has crushed. Most of today’s giants, including Google, Facebook and Amazon, were listed on stock exchange only after the crush. By analogy, it is a possibility that after the current crisis comes to the end, a handier and more technologically advanced successor of Bitcoin will replace the leader.

What do you believe is the most probable scenario?