Will the Bitcoin bubble burst? A recent article in the Wall Street Journal warns that it could. The negative implication of this is that, like a bubble in any market, such as housing or equities, there is a point when the good will that was driving up the price of the commodity has disappeared and the price falls.
It is true that paper currencies and commodities such as gold have increased in value as a result of political instability and economic weakness, but it’s important to remember that their value can be maintained by printing more of them. Therefore, they are not worthless. If you own a product with a finite supply and you can print more, then you would make a profit from its depreciation, as long as enough of the stock is available to cover your new orders.
With this in mind, what do we make of the currency appreciation of such countries as Australia, Sweden and Switzerland? They have all experienced economic growth in recent years, although none of these countries is highly developed and they are all members of the European Union. But you cannot learn much from these results. Their national economies are far more closely linked to the rest of the world than are our own.
But then, I suspect, our national economies are less closely linked to the rest of the world than are those of our closest trading partners, because in many cases we are relying on our trade deals with the US for our supplies of most of our goods. We may be reaping the benefits of that trade deal today, but if the US were to suddenly announce that it would slash our tariffs tomorrow, it would upset our markets and put us at a competitive disadvantage. That’s because we import and export most of our goods.
So why should we worry about the danger of the Bitcoin bubble bursting? Because when an asset such as that of Bitcoin or any other financial instrument or asset for that matter, becomes inflated beyond control, when there is no real demand for it, it begins to depreciate, which in turn causes the value of other assets that use the same virtual money to fall, making it far more difficult for other people to make money off of it. In fact, its values will start falling exponentially, so there is every chance that Bitcoins or anything else worth anything will become worthless.
It is true that Bitcoins are made available to only one person, and only within a limited number of circumstances, but as soon as you have millions of people selling their Bitcoins at any given time, you will begin to see prices fall even further. So whether or not the bubble bursts, the process is always the same.
People who rely on the flow of global trade to provide goods and services on a day to day basis can never be certain that they will be able to keep up with the ever increasing demands of people around the world. Eventually, unless we know that we can get back our financial gains, when it comes to our standard of living, we will find ourselves forced to rely on the kindness of strangers for our survival. That’s where we have gone wrong.
One way that we can head off this eventuality is to stop the spread of this new fad. Please consider all this.