Bitcoin feeling bubbly?

In an article posted by Cointelegraph earlier today, Jim Rogers, a famous investor advisor stated that Bitcoin "looks and smells" like a bubble. Being 75, he acknowledges that he doesn't understand Bitcoin, but he knows a bubble when he sees one.

Is Bitcoin a bubble? Probably.

Don't freak out! Let me explain.

Bubbles happen in economies when a commodity of some kind grows in value based on free market supply and demand, but is fuelled by irrational mob mentality pouring money into the commodity beyond its "inherent" value. "Tulip mania" is probably the most famous of all of these bubbles in history, and is often referenced when comparing Bitcoin's stratospheric price increase.

Here is the problem with this comparison. Bitcoin could still grow in value for 5 or even 10 years before "popping". This bubble is quite early in the inflation stage. It is indeed likely that Bitcoin will have a significant crash in value in the future. It could ascend to $100 000 in 5 years and plummet to $10 000 in a momentous crash. Maybe, in ten years it could be worth much more and fall even more dramatically.

Bitcoin is unlike tulip mania and these other bubbles in that it is nowhere near that height of popularity. It is owned by less than 0.2% of the global population - a tiny percentage. Much of that 0.2% is also in relatively few hands of early adopters. It is such a tiny part of the economy that it can't really be constituted as a bubble. Not yet, anyway.

So, yes. Bitcoin could indeed be a bubble. But it has a long way to go before it pops. If you risk a relatively safe amount of money now, you might just end up being slightly less ahead than you hoped in 5 years. Or, you could be way further ahead in your Bitcoin investment than your other "safer" investments. Not a terrible risk to take, as long as you are reasonable about your level of risk.

Speaking of risk, numerous other bubbles are on the horizon. Real estate. Stocks. Even the credit and debt industry could implode as more and more consumers find themselves unable to catch up on payments. Don't forget that fiat itself might just experience its own little bubble -- and that would be a bubble that would help Bitcoin's value, if anything.

So, don't risk more than you can afford to lose. If you are interested in buying some Bitcoin as a long-term investment, make sure you are diversified and not holding all your eggs in this single basket. Who knows, maybe Bitcoin will save you from another investment bubble.

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reference source:
https://cointelegraph.com/news/jim-rogers-smells-a-bitcoin-bubble
https://en.wikipedia.org/wiki/Tulip_mania

image sources:
images5.fanpop.com/image/photos/28500000/Tulips-tulips-28594078-1920-1200.jpg