Preparing for the Bitcoin Bubble Bursting
Don't be afraid of a Bitcoin bubble bursting
A look at the upcoming Bitcoin bubble bursting
With Bitcoin continuing to soar to extraordinary levels, the media and its hand-wringing "experts" continue to push the narrative of Bitcoin and other cryptocurrencies being in a bubble.
What is troubling isn't that any new asset class will eventually experience a bubble, but the insinuation with Bitcoin is this is especially detrimental and unique to it and the crypto industry in general. By that I mean it's implied it will be far worse than past bubble's bursting.
I don't agree with that, although I do agree that we are approaching a bubble with Bitcoin and the cryptocurrency sector. Probably by the middle of 2018 we'll see a bursting of the crypto bubble.
This shouldn't be taken as bad news, but good news in that the chaff will be separated from the wheat, and at that time we'll see growth in Bitcoin and the surviving currencies that will far surpass what we've already seen.
One of the most recent comparable events that went through a similar reaction to the rising irrational exuberance over the potential of the industry, was the Internet at around the turn of the century.
What happens is optimism fuels a short-term rise in price and valuations that surpass the intrinsic value of the underlying asset class; it rises too fast and too high.
How to think of cryptocurrencies going forward
The number of cryptocurrencies being added are climbing so fast it's impossible to keep track of all of them, or to properly perform due diligence to confirm whether or not they're valid.
If you're interesting in a specific token or coin, the first thing to look for in this crowded market is whether or not the new coin is meeting a specific market demand.
Next, you want to know if the underlying code is designed in a way that resists hacking. If you're not an expert in code, find out who has tested the code and what the results were. This shouldn't be hard to do. Ask questions in forums or support groups that can provide the answer. Also be sure to do it outside of the networks that are invested in the cryptocurrency in order to get an objective viewpoint as well.
Finally, you want to know the ballpark number of the people and institutions that own the currency. The larger the user base or network the better it is for potential investors because it increases the value and potential survival rate of the cryptocurrency.
If these things are in place, a coin has a chance to survive when the inevitable bubble bursts.
The key here is to not panic and sell your cryptocurrencies if they plummet in value. This assumes you have researched what I mentioned above and are confident in its ability to weather the storm that's coming.
Investing in cryptocurrencies in the short term
Assuming my thesis is right, and I do believe it is, there are two ways to think of in terms of investing in Bitcoin and other cryptocurrencies in the short term.
The first is in regard to what your goal for investing in them is. If you're trying to generate some quick gains and get out, this is a good time to do so before the bubble bursts and the coins fail, or you have to wait for a time for them to regain and surpass their former value.
On the other hand, if you're confident in the coin or coins you're invested in, you can simply wait out the carnage and wait for them to start to grow again.
Once the bubble bursts and the fallout starts to clear up, the surviving coins are going to explode in value. That is where the potential to generate the gains of a lifetime will emerge.
Wherever it ends up, it'll be a lot higher than it is today.
One thing to keep in mind is no one has missed the opportunity cryptocurrencies offer, we're only in the early stage of the second phase of growth that any new asset class goes through.
I mention that because many people make potentially disastrous decisions based upon the thought they are missing out on wealth that can be generated in cryptocurrencies. Not only isn't that true, I believe, for the reasons already mentioned, that the best is yet to come.
As for Bitcoin, I believe it will not only survive the bubble bursting, but could reach some of the six-figure heights a number of analysts and pundits have said they believe its value will reach. Some have even said it could reach $1 million a coin.
The future of Bitcoin remains bright
Preparing for the bubble
It was already pointed out that an investors can play cryptocurrencies on a short-term basis, getting in on the dips and selling when they jump higher. Eventually that won't be available because the bubble bursting means there won't be a rebound because there is no one else to buy at the top; or at least the top at the time of the massive correction.
Thinking it through, it's easy to see that once the market temporarily collapses, there will be extraordinary opportunities to buy some quality cryptocurrencies very cheap.
How to prepare for that best would be to either put some savings away in anticipation of that time, or to set aside your earnings from the short-term movements of crypto coins and keep them for the time when the prices are very low. That will be the time to strike.
In regard to cryptocurrencies, you should be able to recognize the time to get in by price, and by the bulk of the scam or weak cryptocurrencies that no longer exist. That lowers the chance of having to choose from a vast number of coins that were available before the bubble burst, and had little if any reason for existing.
The bottom line is having cash available at in the aftermath of the cryptocurrency bubble bursting is what will position investors to get a good shot at the gains of a lifetime.
Some may ask the question as to why I think there will be a strong recovery in the cryptocurrency market after the bubble bursts. Think back to the Internet bubble bursting. While it wasn't known which companies would survive, it was known by those that understood and followed the sector that it would change the world.
The only question was which companies would survive and generate enormous returns for shareholders. Not only is the Internet still generating enormous wealth for investors, it will continue to do so indefinitely.
That will be the same with the surviving cryptocurrencies, along with the companies that are catering to that market; including exchanges and crypto mining companies, among others.
At this time it may be thought this is going to be easy. It's not. What happens if you own Bitcoin and it drops by 70 percent or more? Will you hang on or sell in a panic to recoup some of your money?
Many investors think of this as a short-term game because of the volatility of Bitcoin and other cryptocurrencies. The major reason for that is when the prices dip, many investors buy. This produces the sense of a short-term position Bitcoin, which investors could quickly transition to sell mode and divest of their Bitcoin.
If you're way up and want to do that to take some gains off the table, that's not necessarily a bad strategy, it's only a limited one. I say that because Bitcoin will certainly soar after the effect of the bubble bursting wears off and the market starts to bid up the price again.
Also keep in mind the fact numerous hedge funds and financial institutions are taking an interest in the sector, and not only an interest, but are investing in it. This is going to escalate.
Once the person on the street starts to hear about the money being made, they'll eventually join in and bid up Bitcoin to amazing levels.
A person can make money by selling Bitcoin before it fully crashes, but they'll make an enormous amount of money if they hang on. Bitcoin, cryptocurrencies and the blockchain in general, should be considered a long-term game, even with the short-term cycles that provide consistent buying opportunities.
We are approaching a bubble with Bitcoin and the sector in general. That bubble will eventually burst. But the idea of Bitcoin and other quality currencies dropping to zero in value shouldn't be taken seriously.
What the bubble bursting will do is clean out the debris of cryptocurrency scams and weaknesses, leaving the residue of survivors that will generate enormous wealth for those that are prepared to take action at the time.
The same will be true concerning the growing number of publicly traded companies that are carving out their place in specific niches of the overall blockchain market.