Complex Made Simple

Bitcoin rose 90% from April to May, and now a bubble could burst

Don't be fooled by the sudden rise of Bitcoin to $8000- It could as easily crash

The asset has already gone parabolic, rising from $4,200 to over $8,000 in less than 40 days When that parabola breaks, Bitcoin and other cryptocurrencies typically fall 80% or more The sticky issues plaguing Bitcoin are four, and unless fixed, the crypto could die

Bitcoin enthusiasts need to be aware of the dangers of a bubble burst.

An obsession with FOMO of missing another December 2017 all-time high of nearly $20,000, could prove cataclysmic so caution is advised at this time, even as Bitcoin climbed over $8300 yesterday and settled at $8000 at time of publishing.

Is Bitcoin about to blow?

Since the start of April, the asset has already gone parabolic, rising from $4,200 to over $8,000 in less than 40 days, according to NewsBTC. The price of bitcoin is up 48% in the past 30 days alone.

“But the signal triggered only after the initial parabolic spike, suggesting that Bitcoin price has a lot further to climb in 2019,” said NewsBTC, “But not before a pullback to $7,300 is necessary.”

“Bitcoin’s ability to go parabolic is both a blessing and a curse for crypto investors, as such a sharp and powerful rise can bring investors gains unheard of in most financial markets, but when that parabola breaks, Bitcoin and other cryptocurrencies typically fall 80% or more.”

In spite of Bitcoin’s recent performance, investors as Kevin O’Leary are skeptical of Bitcoin, calling it  “garbage” because it has no intrinsic value even when the asset is quickly becoming a choice asset for shielding against inflation, censorship and government intervention.

This lack of “intrinsic value” is what a JP Morgan strategist, Umar Farooq, the Wall Street bank’s blockchain division lead, says is the cause of divergence that echoes the development of the last crypto rally of late Dec 2017 and early 2018. While talking to Bloomberg, JP Morgan said:

“Over the past few days, the actual price has moved sharply over marginal cost. The divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time, this divergence was resolved mostly by a reduction in actual prices.”

Ok, but why the sudden rise?

Yahoo Finance gave 2 good explanations quoting Bitcoin bull Tom Lee, managing partner at Fundstrat Global Advisors:

“The ongoing U.S.-China trade war and a forthcoming cyclical halving in 2020 are two big reasons for the current rally,” he said.

With volatility in global equities, cryptocurrency investors are looking to bitcoin as a safe haven investment, Lee told Yahoo Finance’s On the Move.

Bitcoin at the moment is truly acting like “digital gold,” offering an investment that avoids exposure to markets impacted by trade uncertainty, Lee said.

Bitcoin is also approaching a cyclical milestone. Every four years, the bitcoin blockchain undergoes a halving in which the reward for “miners” who record transactions on the blockchain gets cut in half as a means of limiting the creation of new bitcoins.

Historically, the halving of the mining reward has been a catalyst for the price of bitcoin as supply tightens.

“It's exactly one year from today,” Lee said. “And bitcoin has historically staged a pretty big rally into the halving, because you're really cutting supplies. So $9 million of day-to-day is sold by miners. It's going to drop to $4.5 million on the halving date.”

Can Bitcoin eventually die?

Teenage bitcoin millionaire Erik Finman claimed that BItcoin ‘will die’ unless the sticky issues it is facing are resolved.

Speaking to Yahoo Finance, Finman indicated that the sticky issues plaguing Bitcoin are four. “It’s facing four big problems. One, its high transaction fees. Two, it takes a long time you know to kind of send anything. And then three, the people that are trying to solve those problems… it’s fragmented, it’s cultish, it’s really kind of a lot of group in-fighting. And I think the fourth one is it’s really hard to get into Bitcoin. It’s really not easy,” as reported By CCN.