Why is another speculative bubble waiting for us?
3 min readThe cryptocurrency market has again seen an upward trend. Therefore, today we will look at what the market is likely to look like in the future and what the reasons are. Speculative bubble before us again?
Market is on the rise again
Since mid-2019, when Bitcoin reached $ 14,000, there has been a long-term slump that culminated in panic of the market due to Coronavirus. Since then, a large proportion of cryptocurrencies, led by Bitcoin, have been rising in price. He has broken the $ 12,000 per coin mark in recent days.
We now have a rising trend ahead of us. It is driven primarily by the influx of new money into space. This fact represents well the increasing number of stablecoins. Their total capitalization is approaching $ 16 billion.
This is one of the main indicators that creates a bullish mood in space. That’s why it’s time to look at what the next cycle is likely to look like.
Another speculative bubble awaits us
Most likely, we now have a period that will be relatively similar to 2016 and 2017. Such a period can be called a speculative bubble. It has characteristics such as irrationality. The growth of a large part of the market, despite the fact that many cryptocurrencies will lack fundamental qualities.
There are three main reasons why it is possible to assume that another speculative bubble awaits us. And we will look at these three reasons today.
Market is dominated by retail
The first important argument for the speculative bubble is that the market is still mostly made up of amateurs. A large proportion of cryptocurrency investors are basically ordinary people who have never invested professionally before.
As a result, the vast majority of cryptocurrency owners will not be able to adequately assess which cryptocurrencies are of fundamental quality and which are on the water. Retail investors are in the habit of buying primarily what is growing.
And this usually leads to greater increases in altcoins. These often promise greater profits, but investing in altcoins is significantly riskier and more dangerous than investing in Bitcoin. Retail investors are thus likely to push forward projects, but they will not look so much at the fundamental values of individual networks.
Technology still in development
We are currently witnessing the arrival of the 3rd generation of blockchains. Transaction protocols such as Bitcoin or Litecoin are considered the first generation. The 2nd generation consisted of blockchains similar to Ethereum. The 3rd generation of blockchains is specific with added functionality, interoperability and higher transaction speed.
This category will include, for example, ETH 2.0, Cardano, Cosmos, Polkadot and others. This whole generation of blockchains is more or less at the beginning of its development and their possibilities have not even been properly explored yet.
We are also witnessing the rise of decentralized finance. All these technologies are at the beginning of their existence. And at the moment it is not possible to recognize which technology will succeed and which will end up in the abyss of history.
Exchanges are expanding the range
The cryptocurrency space continues to stand on centralized exchanges. And there is also a clear trend. For now, various types of digital assets continue to be added instead of being wasted.
This signals that retail investors will have a wide range of choices. Even for professional analysts, it will be problematic to know the space and get to know good projects. Just because of the amount.
For retail investors, the choice will be random rather than based on fundamental values. And given the large supply of crypto exchanges, it will be difficult to make an adequate decision.
Conclusion
The cryptocurrency space is in a stage of radical development and it is still not possible to determine which players will win. This is not even to be expected in the foreseeable future. With a larger influx of new retail investors, we can expect another speculative bubble.
Unfortunately, many people lose money on it, because they bet on bad horses, so to speak. Therefore, it is always important to advise caution in relation to investments in cryptocurrencies. Never invest what you can’t afford to lose.
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