Are you thinking about trading bitcoin? If so, it’s hard to figure out whether the world’s largest cryptocurrency is currently witnessing a true rise in value or is the victim of bubble pricing. Bubble price rises happen for reasons other than appreciation in value, and they eventually burst. So, anyone who intends to add BTC to their portfolio, either as a long-term investment, a swing trade, or a speculative play should review the key points about the father of cryptos in order to make a more informed decision. Here are the most relevant points for making that all-important determination.
Review the Past Year
The undulations of BTC’s price throughout the COVID pandemic provide important information about the cryptocurrency’s inherent stability. When the pandemic hit, just about every security and crypto took a temporary dive in value. But, as people got use to the lockdown and slowing of the global economy, general price levels began to rise.
However, for people who enjoy trading the price volatility, BTC was a prime candidate. From October 2020, value of the alt-coin began rising quickly, hitting a series of historic highs along the way and reaching above the $60,000 mark by April 2021. Since then, prices have fallen back to their January 2021 levels between $30,000 and $40,000. That one-year window argues against BTC being in a bubble. Apparently, there was a change of perception about the crypto shortly after the pandemic hit, with millions of people viewing it as a safe haven investment, akin to gold.
Compare BTC to Gold
Many long-term and short-term traders and investors now look at the big picture and accept the fact that cryptocurrencies are one way to protect portfolios from the volatility and uncertainty of the traditional securities markets. Oddly, the major financial media outlets rarely refer to gold and other precious metals as being in a price bubble, even though they behaved pretty much the same way bitcoin did from early 2020 until today. It’s not a direct correlation, but the charts of BTC and gold both reveal a safe haven effect since March of 2020. There was a major dip, and the people rallied to buy for several months in a row. Of course, there was an inevitable correction for both, but there’s still debate whether either asset is in a bubble.
Is Volatility Inherently Evil?
For some investors and short-term trading enthusiasts, volatility is not such a bad thing. Nearly every security, even the blue-chips, undergoes a period of rapid rises and falls in value. The same is true for nearly every cryptocurrency in existence, especially the smaller ones. BTC is the largest, best-known, most capitalized crypto in existence. The long view of its behavior, since its introduction in 2009, has been like a roller coaster, with one significant difference in that the BTC roller coaster always ends up higher than it began. There are some massive dips, drops, rises, and climbs between new highs, but so far, the most popular cryptocurrency of all time has held its value and defied categorization as a bubble asset.