Bitcoin, Needle of the next Global Economic Bubble?

bitcoin bubble

A year ago, Bitcoin was rising crazy like breaking through the roof. Someone asked me if Bitcoin collapsed, would it bring global economic crisis. I answered him with a confident “no”! When it collapsed, it would only bring disaster to its own sphere of influence. Global economy will not be affected in anywhere. However, if this same person were to ask me again this time, I would have to think twice before I answer him.

About this month last year, prices of Bitcoin was breaking through hundred of US Dollars. That was already crazy enough. But now, just merely a year after, it is breaking through thousands of USD.  An article featured in Market Watch entitled Three Reasons to Fear the Coming Crash of the Bitcoins by Mathew Lyn published on May 24th 2017, saying that the total capital of Bitcoin at that time was merely as small as US$ 35 Billion. When we compare to the total capital for Apple of US$ 805 Billion, Bitcoin is comparatively a negligible financial sum.  It will not bring any harm to the global economy if it collapses.

Stretching its Sphere of Influence

However, the total capital of Bitcoin has surged up to  1.2 Trillion with a pricing value of US$ 7000 each on the month of November , 2017. This is merely after a spread of 6 months’ time.  The rate of increase is so dramatic that it will surely invite a second thought for all those critical analysts.  What if Bitcoin reaches US$ 10,000 or 20,000 price level?  Will the scenario bring any difference if it collapses then?

A simple search on the internet also revealed that there are more and more prominent features getting involved or revealing their involvement with Bitcoin.  The rich and famous people  like Tim Draper, the Billionaire venture capitalist, former US vice President Al Core, Peter Thiel, co founder of PayPal, famous celebrities such as Hilton Paris, and many more others are openly disclosed their involvement with Bitcoin. Large businesses like Microsoft, Tesla, Wikipedia, Alphabay, Pure VPN and many others are accepting Bitcoin for business transaction.  Famous and influential people such as Waren Buffet, Bill Gates, Richard Branson, or even Ben Bernanke spoke positively about the use of Bitcoin for the financial world.

As such, we don’t really know how far and wide stretch these crypto currencies, aside from Bitcoin, have their crisps over the whole financial world.  Furthermore, there are more than 30 virtual currencies available in the market right now.

Invention of the Cryptocurrency

The story of the early intention of inventing cryptocurrency was of noble ambition. It was speedily embraced by the market as it was seen as an alternate currency instrument to fight against or replace the corrupted and manipulated financial system of current practices. It was also viewed as a safe haven for investors like gold in the past during market crashes.  This market crash event is seen by most financial analysts as inevitable apocalyptic.  As a reason, crypto currencies are readily accepted as a perfect alternative for investment, than stock.

But the rate of development of these virtual currencies attracted so many investing manias and speculators, the near future development may be hampered and short lived.

The meteoric rise of bitcoin
The meteoric rise of bitcoin brings fears of a bubble burst

Instead of being a peace haven for investors, it can become the other way around … possibly the cause of market crash and subsequently the next global economic recession.

The recent boom of the virtual currency reminds of the event of the dotcom bubble.  The dotcom or the new arena of the informatics technology invention ushered in a new enthusiasms and optimism about the IT industry.  However, it became a bubble was due to the overdone by investing malpractices out of those maniac investors and speculators. There were greed and craziness among investors during that period of time. Does it resemblance what is going on now with crypto currencies?

But the only different this time is that the dotcom was within the financial system of the market. When it crumbled down, the whole system was affected.  And now, the cryptocurrency system is outside the current financial system.  However, we have to double checked ourselves; does crypto currency system will not have any emotional impact to current financial system if it collapses? Would there no collaborate effect in anyway?

Crypto currency does have its bring future, ushering in a new innovative generation of financial market play.  But it will not without going through the test of market tremble first. This test will bring in reshuffling exercise. Only those with strong fundamental will be able to withstand the time of test. The future cryptocurrency star play might not necessarily be Bitcoin, it might be Ethereum, Titcoin or Blackcoin. Therefore the best time to invest for long term into crypto currency IMHO would be the time after market tremble.

Because of its fresh appearance emerging from the market, manias and speculators are crazy about it. Their over zealous involvement will be instrumental for structural strengthening for this new currency tool for the benefit of the future financial market.

Fundamental of Current Financial Market

And many financial analysts see the current financial fundamental are still strong and intact. It will not be affected if cryptocurrency tumbles down. Critical analysts would readily doubt this as they see gigantic debts far from any historical records are everywhere in the global markets. It is just waiting for a test of global tremble. During the test comes, a crack of any weakness in any major economies, which is unknown at this moment, will be enough to bring a ripple effect and crumble down the whole system.

I like what Matthew Lyn concluded in his article when he said:

“As we learned in 2008 and 2009 when a part of the financial system starts to crumble, suddenly the whole edifice starts to look pretty shaky. We don’t really know what contracts have been linked to crypto currencies, what derivatives have been hitched to them, or how deeply they have been embedded into the financial system. One thing is for sure, though. In a crash, we would find out very quickly – and the losses might ripple out in all unexpected ways.

Right now, bitcoin is on a roll. We have no way of knowing what its real value might be. The peak of a run might well be some way off. But when a crash comes, it won’t just be its holders who feel the pain.”

So far at this moment, I did not find article (with my limited resources and effort) aside from Mathew Lyn written on the subject linking global economic crisis with cryptocurrency.  Those that I have come across were written some months or even years ago.  They all denied the fall of cryptocurrency would have any impact on the global economy. All of those articles were based on the known statistic and financial system at that time, if they were to rewrite them again, I wonder whether they would write differently.

On the other hand, we have to be ascertained that the stock market are more emotional than rational when it comes to panic selling. Furthermore, all US markets are now in unprecedented historical heights and irrationally at peak. If not a global recession, it would probably be a major correction if it happens.

If virtual currencies collapse, would the global economy be affected?  I would bet it is safer to lessen your portfolio exposure when it happens crumbling down. It would be saver than sorry.

Currently, this article perhaps is the first or craziest article linking the collapse of cryptocurrency to the crash of global market because no analytical and rational mind would think it will happen. However, please remember that when the least expected thing happens, it will be called the “Black Swan!”  What do you think?

 

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