Bitcoin has gone through a phase where it was constantly being called a ‘bubble’ that will burst and put its investors in a tussle, to a phase where it proved everyone wrong and climbed up the price-ladder like nothing ever seen before. From practically nothing in 2008 to $17000 a coin in December 2017, Bitcoin has gained many fans and speculators in its 9 years of existence. However, price has soared up so high recently that many are worried it might crash hard and never recover.
Why the ‘bubble’ may never burst
Bitcoin being the original cryptocurrency has first-mover advantage and more brand recognition than other blockchain projects. When people want to invest in cryptocurrency, they tend to invest in Bitcoin more than other altcoins which helps it maintain its position as the cryptocurrency with the largest marketcap. The name ‘Bitcoin’ holds enough value that inferior altcoins such as Bitcoin Cash and Bitcoin Gold attract investors just by stealing the brand, even though the blockchains have very few users and support. It is becoming a trend where developers name their project after bitcoin just to find buyers, and it works.
Many early investors sold their Bitcoins for small profits or spent them shopping online. Had they simply held their bitcoins, they would have become millionaires with the price surges over the years. As more and more stories pop up in the news about early investors missing out on millions by exiting bitcoin too soon, new investors are trained to hold onto their bitcoins no matter what. These new investors that do not want to sell off their crypto for anything are called HODLERS.
According to general trends in stocks and equity, investors and share-holders tend to sell as they witness a small dip in order to secure any profit they may have. However it is the other way around in cryptocurrency. HODLERS buy more during dip instead of selling it, which helps establish higher price floors over the years. There are certainly still sell offs every now and then, but Bitcoin always seems to recover and rise in price. If price does start to drop off to previous lows, it is bought up quickly as everyone wants to take advantage of the ‘sale prices’.
Every single time it dips a little, people buy more and hold it. If there is no selling, the price will not go down. This phenomenon has stopped the price of Bitcoin going down below a certain level. Now with the price over $15,000 everyone wishes they had bought bitcoin and held it when it was only $1000 earlier this year. If price ever starts to drop back to those prices, there will be more people waiting to buy than there are people who want to sell. With this trading psychology, every few years the price floor of bitcoin is raised to the level that was previously thought to be a top of a bubble. In 2013 bitcoin topped out around $1200 before there was a large selloff. It is unlikely bitcoin will ever drop that low again because as soon as it gets close there will be a surge of buyers. Overtime this leads to higher highs and lower lows. Bitcoin does go through price cycles, but the ‘bubble’ is not going to burst they way traditional markets would.