Bitcoin is a bubble that will pop because of oversupply, says one analyst.
A recent analysis regarding supply and demand suggests that the end of the Bitcoin bull run will come not as a result of lack of buyers but because of an overabundance of supply. The supply, according to the analyst, will come through new and varied ways to trade Bitcoin and from Bitcoin hard forks.
The analysis stems from the dot-com bubble in the late 1990s, when any company with .com in its name instantly received a huge market boost. However, the end of the dot-com bubble occurred when a huge number of new .com IPOs flooded the marketplace, many of which were unstable business models.
For a while the market absorbed them, but when the market finally corrected it pulled the rug out from all of those businesses and only the strong survived.
Whence Bitcoin supply?
One of the most important (and most repeated) features of Bitcoin is its limited supply. Ask anyone even remotely familiar with the cryptocurrency and they’ll tell you that only 21 mln Bitcoin will ever exist. With such limited supply, how could an oversupply ever occur?
The answer is multifaceted. For starters, Bitcoin hard forks are now creating new derivatives from the original Bitcoin. For example, the Bitcoin Cash hard fork has now created an entirely new Bitcoin with a market cap of $26 bln. Whatever your politics on the BCH fork, the reality is that supply increased. The Bitcoin Gold and Bitcoin Diamond forks did the same.
Further, the issuance of Bitcoin futures may well be the cryptocurrency’s own undoing. Though hyped as an amazing mainstream adoption (true enough indeed), the reality that derivatives of Bitcoin will now be tradable may limit the depth of investment in the original and thin out the pool of investors. According to the analysis:
“…as the river of ways to invest in cryptocurrencies widens, the flood that has lifted the price of the Bitcoin will surely recede, and, as always, much faster than people expect.”
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Author: Jon Buck