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Bitcoin recently exploded in price to reach an all-time high of over $60,000 per bitcoin. While many enthusiasts point to this as evidence of bitcoin’s strong future ahead, others look at it as a speculative bubble. So is bitcoin in a bubble or is this sky-high price just a preview of things to come?
In this article, we try to answer these questions: Where is bitcoin going? Should investors worry about a bitcoin bubble?
What Are Bitcoin and Cryptocurrency?
Bitcoin is a digital currency called a cryptocurrency. Bitcoin was invented in 2009, but it didn’t grab mainstream attention until much later. Bitcoin and similar cryptocurrencies run on a technology called blockchain. This system enforces strict tracking of every single bitcoin while allowing anonymity. That’s both a benefit and a challenge of the blockchain system.
Each currency works differently. Some, such as bitcoin, are available in limited quantities while others may see circulation expand over time. In either case, the assets are tracked by a network of countless computers around the world called miners that keep a list of every single bitcoin transaction that’s ever happened since its start.
A Huge Jump to $60,000 per Bitcoin
Bitcoin itself exists in limited quantities, so like any other asset, it falls under the laws of supply and demand. With limited supply and quite a bit of demand, bitcoin’s price went from around $100 in 2013, briefly passed $10,000 in 2018, and then exploded to $60,000 in 2021 (as for April 11th).
Because of the market forces at work here, that could be a legitimate price increase. But it could also be a bubble.
When bitcoin first jumped past $10,000, many skeptics thought bitcoin was in a bubble and overvalued. But the following run-up to $60,000 put that into a whole new perspective.
I personally jumped in with that camp and sold my holdings for a profit of about $1,000. While it was nice at the time, my bitcoin would have been worth more like $20,000 if I had held on to it. I’ll always be kicking myself for that one!
However, bitcoin remains extremely volatile and takes big daily swings in price that are often more than $1,000 per coin. That price rollercoaster makes bitcoin far too risky and volatile for many investors.
Is Bitcoin Going Mainstream, or is there a Bubble?
The current bitcoin price spike is due to a combination of reasons. These include legitimate supply and demand for bitcoin as well as some celebrity-induced enthusiasm.
Elon Musk and other celebrities have jumped on the Bitcoin bandwagon and believe it is here to stay. The currency has also joined many corporate treasuries, including those of Tesla and payment processor Square. Even large investment banks like J.P. Morgan, once crypto skeptics, have jumped on board.
And more and more companies are accepting it as payment. These include Microsoft, Starbucks, Coca-Cola, and even cosmetics company Lush.
Further Reading: How to Invest in Cryptocurrency?
Bitcoin Lovers and Haters Have Different Ideas
Bitcoin has plenty of fans and plenty of skeptics. Federal Reserve Chair Jerome Powell recently said that cryptocurrencies are not a good store of value. But J.P. Morgan said investors may want to keep up to 1% of their investment portfolios in bitcoin. So who should we listen to?
There is no way to know if bitcoin is in a bubble until it pops, or doesn’t. That makes now a particularly questionable time to buy-in. However, with many large businesses recently embracing bitcoin and buying up billions of dollars in the currency, there’s a very good chance these prices are here to stay.
But take care before going all-in, as a potential bubble pop could cost you a big portion of your investment.
If you’re interested in buying bitcoin or other cryptocurrencies, you can do so through special brokers like Robinhood, eToro, or Coinbase.
Bottom Line: Where is Bitcoin Going?
Bitcoin is a very risky investment. Fans believe it will change the way the entire world does business. But there is no guarantee that the current price will hold up. At this point, it could double in value just as easily as it could go to near-zero.
That’s why it’s a good idea to tread carefully with bitcoin and other cryptocurrencies. They can be fun to buy and trade, but don’t forget that there’s a real risk of losing money.