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Bubble

Bubble

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When an asset is traded at a price exceeding that asset’s intrinsic value.

What Is a Bubble?

For many years, commentators have declared cryptocurrencies (and particularly Bitcoin) a bubble. By this, they mean that the price of a given coin , or of digital assets generally, is far higher than their “real” value. In fact, some crypto skeptics believe that most cryptocurrencies actually have a real value of zero.

Concern over a potential crypto bubble reached its peak around 2018 when the market capitalization of cryptocurrencies soared. At points, the total market cap across all cryptocurrencies was as high as $800 billion back then — despite it being generally considered to be impossible to assign a true, intrinsic value to crypto.

Accusations of a crypto bubble are often informed by a belief that the sole purpose of cryptocurrency is speculation. Skeptics point to the low levels of adoption of currencies such as Bitcoin within the “real” economy — for example, it is still extremely difficult to buy a meal in a restaurant or pay for most services using Bitcoin. However, the applications and use cases of cryptocurrency are growing every day, and crypto enthusiasts maintain that the technology and its associated tokens will prove to have real value soon. Ethereum is perhaps the prime example of this — providing not only a currency as a store of value but also the backbone for an entire ecosystem of decentralized financial and computing services.

The rise of decentralized finance ( DeFi ) is thought by many to be proof of crypto’s real utility. Proponents of DeFi use blockchain technology to build alternatives to traditional financial products such as loans and insurance.