To answer this, we must first understand what a bubble is. The NASDAQ definition of a bubble is a “market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset”.

Based on this definition, there is one criteria that blockchain, or more specifically — cryptocurrency — must fit in order for the phenomenon to be considered a bubble:

“Surges in asset prices above the fundamental value of that asset”

An example of a bubble that now seems irrational in the modern day was the tulip bubble in the 16th century. The prices of tulips had escalated quickly on the back of speculation, even becoming used as barter for property and luxury goods — fortunes were made overnight.

It is no question that Bitcoin’s price performance is a prime example of a surge in prices — starting from less than $1,000 at the end of 2016 to a record high above $19,800 a year later, it represents an almost 2000% increase in the span of a year.

Has the surge in asset prices been justified? J.P. Morgan Chase CEO Jamie Dimon once called the digital currency a “fraud”. He has since re-called his statement, claiming that the “blockchain is real”. The question of Bitcoin’s intrinsic value has often been a point of controversy — how can something that is invisible and intangible have value? A commodity is considered to have value if it is both scarce, and has utility. Bitcoin has a set cap of 21 million bitcoins, meaning it is scarce. CNBC described Bitcoin’s utility as it’s “potential to be a more efficient commodity than we already have”. Given this, we can establish that Bitcoin, and other cryptocurrencies, by extrapolation, can be considered to have intrinsic value. .

Blockchain’s value

Regardless of whether it is considered a bubble on the recent success of cryptocurrency, blockchain technology is no doubt here to stay — there are just so many applications for blockchain other than just cryptocurrency. The rise of dot com was considered a bubble, but it didn’t stop the internet — in this same way, the blockchain bubble will not stop blockchain technology.

It is difficult to place a true monetary value on Bitcoin and other cryptocurrency and blockchain products, and therefore establish if blockchain and bitcoin is a bubble until it pops. If and when the blockchain bubble pops, companies that provide blockchain-based solutions that solve real problems are best-poised for success.

Article provided by the maxdata.io content department