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The Beginning or the End: Cryptocurrency Bubble Popping, or Just Growing Pains?

Twitter, Reddit and various online cryptocurrency forums have taken to referring to the first month of 2018 as “black January.” Memes of the Titanic sinking, bloody battle scenes, and Game of Thrones characters warning us all that “Winter is coming” have served up gallows of humor as many investors watched their portfolios tank over the past several weeks.

Some media outlets declared that the latest crash, which saw several cryptocurrencies decrease in value by upwards of 25% in a single day, is a clear sign of the cryptocurrency bubble popping. Others see the latest crash as a healthy correction and a great opportunity to buy low before the next big leg up.

Cryptocurrency Bubble, Healthy Correction, or Drop in the Ocean?

For newcomers to the space who entered the markets during the epic bull run late 2017, the gradual slump and sharp crash of early 2018 is no laughing matter. Those who have followed the cryptocurrency markets for awhile, however, may recall that this is not the first crash of this magnitude to hit the cryptocurrency markets. In fact, Bitcoin experienced several significant crashes where its value has dropped by a larger percentage. Even in 2017, widely considered to be a breakout year for cryptocurrencies, Bitcoin went through several major corrections where it dropped by over 30%. Each time someone declared that the cryptocurrency bubble had popped, and each time the market recovered and went on to achieve a new all-time high.

With the surge of interest in cryptocurrencies throughout 2017, one thing that is certain is that the recent dip has been receiving much more mainstream media attention than any previous price correction. Rhetoric concerning the dreaded cryptocurrency bubble has made its way into the headlines of major newspaper, cable news programs, and office small talk. Despite their newfound proclivity for weighing in on crypto markets, many news outlets appear to be just as confused as investors, with CNBC headlines suggesting, “Bitcoin Price Will Crash to Zero” on one day and, “Cryptocurrency market could hit $1 trillion this year with bitcoin surging to $50,000, experts say” the next day (literally). Technically, it is possible that either of those things could happen. (Aliens could also descend and blow up the Earth.)

What Are the Experts Saying?

Tyler Winklevoss is a prominent early investor in Bitcoin and one of the first reach billionaire status. Having been through several big spikes and crashes, Winklevoss dismissed concerns of a cryptocurrency bubble. He stated recently in relation to Bitcoin that, “regardless of the price moves in the last few weeks, it’s still a very under-appreciated asset.”

Tyler Winklevoss
“TechCrunch Disrupt NY 2015 – Day 3”. Source: TechCrunch 

The Winklevoss twins indicated that they will continue to maintain a long term position in Bitcoin despite the recent crash, and that they anticipate an eventual market cap of 5 trillion dollars. Their statements come in sharp contrast to some prominent traditional finance experts, such as Warren Buffet, who recently told CNBC, “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.” Buffet also said in the same interview, “Why in the world should I take a long or short position in something I don’t know anything about.” Some have questioned whether Buffet’s experience in traditional finance may be misplaced in discussing digital assets, particularly as he claims to know nothing about them.

Steve Strongin, head of investment research for Goldman Sachs, echoed Buffet’s naysaying, suggesting that Most digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value.

Strongin conceded that Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors.

Despite negative predictions from some within the traditional financial sector, a number of finance experts have maintained a bullish stance on Bitcoin and cryptocurrencies. Dan Morehead, early Bitcoin investor and head of Pantera Capital, a $1 billion cryptocurrency and blockchain hedge fund, believes the latest dip is just another bump in the road and not evidence of a cryptocurrency bubble popping. A former Wall Street trader, Moorehead predicted in December as Bitcoin hit an all-time high, that the currency would shed 50% of its value before rallying again.

To Hold or Not to Hold, That Is the Question!

Strong opinions about cryptocurrencies are everywhere, ranging from sensational headlines on major media outlets claiming the cryptocurrency bubble has popped to Twitter gurus prophesying about the next great bull run. The vast majority of the commotion is concerned with prices: Will the price of Bitcoin, Ethereum, etc. go up or down? Who knows. And maybe that’s the wrong question to be asking. Perhaps a better question is: do you believe in the technology? If you don’t, then perhaps it isn’t the best investment? If you do, it may be in your best interest to remember that during episodes of market hysteria. Even skeptics like Goldman Sach’s Strongin attest to the inherent value in successful blockchain applications. Cryptocurrency markets have always been volatile, both on the way up and on the way down, but the technology is not going away.