Bitcoin has soared high in value and popularity, but this astonishing rise has also proven a double-edged sword. Its high potential value has created equal confidence in increased volatility. This makes it an excellent trading currency and a valuable currency for purchase but also causes wild fluctuations in price.
Recently, Bitcoin prices have faced significant dips; this led to panic among early investors and the general public. Even though it’s just about a week since the downward trend started, this has caused a lot of worries in the Bitcoin community. Some experts suggest that Bitcoin is in a bubble and could burst at any time; we will examine this possibility.
It’s been said that Bitcoin’s value depends on its use as an alternative currency, and it has been rising at an exponential rate for some time now. The value has recently started to stabilize, but there is still a lot of uncertainty in the market. Therefore, the recent drop in the price comes as a shock for some users.
The fact that there are very few vendors who accept Bitcoin as a form of payment hasn’t helped either. The only notable companies that accept this form of payment are WordPress and Reddit; it will take time before more companies start adopting it as a payment medium. Thus, the primary reason for Bitcoin’s existence is still vague at best.
If the use of Bitcoin isn’t drastically improved, there is a high possibility that it can collapse at any time. However, it is worth considering why Bitcoin seems to be headed for a massive change in value.
The actual cause of the drop in value was due to China’s announcement that they would not be interacting with the cryptocurrency market anymore (until further notice). This announcement made others unsure about the stability of their investments in cryptocurrencies; this led to a massive sell-off.
The signs of a recession are also looming large; this causes even more anxiety among investors. They panic and sell-off, which in turn causes a drop in the value of Bitcoin. This spiral can lead to a complete collapse of the cryptocurrency.
Solution for Bitcoin’s Flaws?
Some people think that Bitcoin is meant to collapse, but that is not the case. The drop in value has revealed some disturbing trends; these trends could be corrected with a few changes in how Bitcoin is utilized.
The biggest flaw with Bitcoin’s current model is that an actual commodity doesn’t back it. This means that its value depends solely on investors’ confidence; if people lose faith in Bitcoin, its price begins to drop.
As any real-world commodity does not back Bitcoin, there is a very high possibility that its value will drop at some point. Even though Ethereum, Litecoin, and Ripple have their problems to deal with, they have small markets; this makes it less volatile.
The decentralized nature of these currencies also means that any single entity can’t manipulate its value. This allows for the high circulation of these currencies, which in turn can lead to a higher price.