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Is the Bitcoin Bubble Bursting?

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It was less than week ago that the value of a single bitcoin cracked the $20,000 level, if ever so briefly. Perhaps, the pressure was too much for investors to bear? Perhaps, it was series of suspect news articles that simply shook the cryptocurrency tree from shore-to-shore. No one be sure what happened, but just days before Christmas, the overall cryptocurrency market took a significant hit.

It’s remarkable that bitcoin dropped as far down as the $10,000 level, essentially correcting by 50% from where it started the year (mid $900 range per coin). This kind of activity would be considered normal for stock investors who have seen runaway stock prices stopped in its tracks with similar type corrections. The question is, “where do the prices go from here?”

While a number of experts have been warning about an investment bubble, the ctyprocurrency market has certainly gotten nervous over the past few weeks. This is noteworthy because these warnings came while other experts have been promoting a $500,000 bitcoin within the next 2 years.

For the benefit of novice investors, this may not be a bursting bubble, but instead, just a correction. If that’s the case, we can all expect to see significant volatility in the next couple of months while cryptocurrenies find its support levels. Before anyone jumps into bitcoin with their life savings, it would be prudent to note the following risks:

1. The aforementioned price volatility – Over the past few months, bitcoin has shown tremendous volatility. Per the charts bitcoin sat at just under $6,000 per coin on November 13. In just over a month, the price rose 220%, only to go into free fall over the last week. It takes a strong investment stomach to endure this kind of volatility.

2. Security Issues – Contrary to claims of elite security, there have been more than a few reports related to hackers stealing ownership of bitcoin and other cryptocurrencies.

3. Coin Loyalty Issues – With tight knit groups holding large investments in a certain coin, it’s always possible the new “flavor of month” coin will hit the market, prompting some large groups to sell one cryptocurrency in favor of another. The coin being sold will decrease in value based on supply/demand models.

Cryptocurrencies are still in its infancy. No one could be blamed for risking a little liquidity with a chance at significant rewards with something like bitcoin. However, savings and retirement monies would be well advised to proceed with caution until the market stabilizes.

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