Just over a month ago the whole world was freaking out about Bitcoin, its price simply skyrocketed, going to over to $20,000 and tons of people invested in it heavily, expecting it to increase further to $100,000 dollar maybe or even to a $1,000,000. But unfortunately tons of people lost money because over the last month, Bitcoin’s price went down significantly to under $10,000 and it seems to continue decreasing, and it will most likely.
Its not surprising that Bitcoin is crashing because that’s how our economy works. So let’s take a deep look at how and why exactly it happened, and is it going to increase again? Our economy works in a very predictive way, it grows slowly and then suddenly skyrockets, and then crashes, and after a period of time, it starts recovering again, and that process repeats over and over. The same cycle happens to companies, real estate and in the most recent example, it happened to Bitcoin and other cryptocurrencies. But why does that happen in the first place?
In the free market, prices are set by the supply and demand, if more people want to buy something, the price naturally increases and vice versa, if the demand for iPhones decreases, the prices naturally falls down. That’s why gold is expensive, because the supply is limited while there are tons of people who want to buy it. And as long as there will be a demand for gold, prices will stay high.
In 1997, there was a dot com bubble, the internet started exploding because everybody believed that this was the next big thing. Since
everyone wanted to make money, people simply started throwing money at every new tech company, that’s why new companies emerged every day. In fact, over 1300 companies were created during that period and among them were Google, Amazon and many others. The stock market was going through the roof because everyone was investing so the media was obsessed about it and never stopped talking about the financial boom that was going on in the stock market, which drove even more people to invest and that led the prices to increase to unbelievable numbers.
Amazon’s stock price for example increased from less than $2.00 to over $107 in just 3 years. But as soon as people realized that most of these companies were overvalued, they wanted to get back their money before the market crashes otherwise they would lose all of their investments. And as always media started raising the panic again, that if that this is the end of the world, and that led everyone else to pull out their investment, and the result was, most of these companies went bankrupt and people lost billions of dollars.
Amazon’s stock price for example, fell to only $7.00 and the company was on the brink of bankruptcy. Only few companies could survive the crash and today they are leading the tech industry.
The same thing happened in 2008 by the way, and now its it is happening to cryptocurrencies, when Bitcoin just emerged in 2008, it got a lot of attention from specialists who really understood its potential to replace our current monetary system since it has crashed the entire economy. And over the years, besides attracting more and more people, many other cryptocurrencies emerged, exactly like in 1997, everyone started a tech company. In January 2017 when the bitcoin become over $10,000. The media became obsessed about it and started talking about it continuously, attracting massive amounts of people who have absolutely no idea what is Bitcoin or how does it work exactly, but everyone wanted to make money, so people simply started throwing money into Bitcoin and other cryptocurrencies. Many cryptocurrencies emerged every single day, and by the end of 2017, there were almost 2,000 cryptocurrencies in the market.
In fact, there are websites where you can go and create your own cryptocurrency (we just thought it would be interesting to let you know that). Anyways, after these massive investments, as soon as people realized that its a bubble, that Bitcoin simply doesn’t worth that price, at least for now, a lot of people pulled out their investments which forced the price to drop, and of course when the media stated reporting that Bitcoin’s price is falling, everyone else (especially the ones who don’t understand how it works) and started selling their investment, which caused the price to fall even further. Exactly like what happened in the dot com bubble in 1997.
As always, it goes back to the same basic principle of supply and demand. But the main question is, will it grow again? I am not sure exactly about Bitcoin, but cryptocurrencies in general will start becoming more and more popular and probably will not experience such a dramatic growth like last year, and the ones that will prove to be more reliable will most likely dominate the market in the coming future.