Why cryptocurrency is bubble? Cryptocurrency has been the talk of the town for years now, with some predicting a financial revolution, while others deem it to be nothing more than a bubble.
So why is there such debate surrounding cryptocurrency? Is it really something we should be investing in? From Bitcoin to Ethereum and Ripple coins, the world of cryptocurrency is vast and complex. But what is at its heart? And why are so many people willing to invest their money into this risky venture?
The debate surrounding cryptocurrency is whether or not it truly represents a real investment opportunity, or if it’s just another “bubble” that will burst eventually and leave investors with heavy losses.
In this article, we will analyze the current state of crypto markets and try to answer the question: Is cryptocurrency really a bubble or a new era of finance?
Why Cryptocurrency Is Bubble?
The cryptocurrency market has been one of the most exciting and profitable investment opportunities in recent years. It has seen unprecedented growth, with Bitcoin (BTC -1.98%), Ethereum (ETH -3.19%), Dogecoin (DOGE -5.58%) and other digital currencies delivering once-in-a-lifetime gains to investors who got in early.
For example, a $155 investment in Bitcoin at $1 would have been worth over $1 million when it hit its peak of $64,800 per token in mid-April 2021.
1. There’s very minimal real-world utility
The real-world utility of digital currency is extremely limited. Despite the hype and media attention that Bitcoin and Dogecoin have received, only a tiny fraction of businesses actually accept them as payment.
According to Fundera, only 15,174 businesses accept Bitcoin, while Dogecoin has been accepted by just 1,300 businesses globally after eight years. This is an incredibly small number when compared to the estimated 582 million entrepreneurs worldwide.
2. Valuations, relative to transaction data, made no sense
The current state of cryptocurrency valuations relative to transaction data is nothing short of astonishing.
According to the Nilson report, Visa and Mastercard processed a combined 1.71 billion credit transactions daily in 2018, while Bitcoin, Ethereum, and Dogecoin only managed to process a combined 350,000 transactions per day.
Despite this huge discrepancy in processing power, the Big Three of crypto have a higher combined market value than Visa and Mastercard.
4. There’s virtually no barrier to entry
The lack of a barrier to entry in the crypto space is both a blessing and a curse. On one hand, it allows anyone with the time and resources to develop their own blockchain and token, which can be beneficial for innovation.
On the other hand, it has led to an overwhelming number of cryptocurrencies on the market. According to CoinMarketCap, there are almost 10,000 different cryptocurrencies in its system. While many aren’t trading much, if at all, that’s an insane amount of potential competitors to Bitcoin, Dogecoin, and Ethereum.
This means that the crypto space is constantly being diluted by an unlimited amount of competition.
5. Centralization remains a problem
Centralization remains a problem in the world of cryptocurrencies. The goal of decentralization is to ensure that no one person or small group of people controls a network, yet data from BitInfoCharts.com shows that this is not always the case.
For example, just 2,155 addresses own almost 42% of all Bitcoin, while 66.6% of all outstanding Dogecoin is owned by only 99 addresses.
This means that a small number of people have an outsized influence on these networks and could potentially manipulate them for their own gain.
Conclusion
Cryptocurrency has been a popular investment opportunity and seen incredible growth in recent years. However, there are several reasons why some may regard it as a “bubble”.
These include its limited real-world utility, its valuations relative to transaction data not making sense, the lack of barrier to entry leading to many competing currencies, and centralization remaining strong.
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