Cryptocurrency, which promised to revolutionize the financial system, has been the subject of fierce debate for several years. Some see it as the future, while others view it as a tool for speculation and financial fraud. How justified is the expectation that cryptocurrency will change the world, and is there a likelihood that we are witnessing the inflation of one of the largest bubbles in history?
Why is cryptocurrency called a bubble?
1. Absence of intrinsic value
Most cryptocurrencies, including bitcoin, are not backed by real assets. They are valuable solely because people believe in them. This is reminiscent of the Dutch tulip mania of the 17th century, when the price of tulips soared to the skies before collapsing, leaving investors bankrupt. Like tulips, bitcoin and its analogs lack a fundamental value to rely on.
2. Extreme volatility
The crypto market is known for its unpredictability. For example, in 2021, bitcoin rose to $64,000, then lost half its value in less than a year. Such fluctuations suggest that cryptocurrencies resemble a speculative asset more than a stable store of value.
3. Pump and dump schemes
The cryptocurrency market regularly experiences artificial price pumps followed by sharp crashes. This has been made possible by weak industry regulation. An example is the Squid Game token (SQUID), whose price skyrocketed to $2,800 per coin and then plummeted to zero within hours, leaving investors without funds.
4. Limited real-world application
Despite promises of revolution, most people use cryptocurrency as a means for investment or speculation, rather than for everyday transactions. Even major companies that announced acceptance of bitcoin (e.g., Tesla) later abandoned this practice. If cryptocurrency is so promising, why hasn't it become mainstream yet?
Examples of cryptocurrency project collapses
FTX and Sam Bankman-Fried
The collapse of the FTX cryptocurrency exchange in 2022 was a stark example of the market's fragility. Fraud, lack of transparency, and the loss of billions of dollars of investor funds demonstrated that even the largest players are not protected from scandals and bankruptcies.
Terra Luna
The collapse of the Terra ecosystem in May 2022 wiped out over $60 billion in market value. The stablecoin TerraUSD (UST), which promised stability, proved to be completely unprotected against market pressures. The result was the collapse of the entire project.
Dogecoin and memes
Dogecoin, created as a joke, peaked at $0.73 per coin due to social media hype and Elon Musk. However, after a sharp decline, thousands of investors were left with virtually worthless tokens. The irony is that this 'meme' robbed many of real money.
Major players and manipulation
Whales (holders of large volumes of cryptocurrency) easily manipulate the market by artificially raising or lowering prices. This is beneficial for those at the top of the pyramid but catastrophic for ordinary investors.
Hype and FOMO
Fear of missing out (FOMO) leads people to invest money without understanding the essence of the asset. This phenomenon was vividly demonstrated in 2021 when millions of people began investing in cryptocurrency solely due to media hype.
What's next?
Cryptocurrency proponents argue that they are in an early stage of development, and crashes are merely inevitable steps towards maturity. However, skeptics warn: a bubble fueled by speculation, greed, and lack of regulation will inevitably burst. When this happens, the consequences could be catastrophic not only for crypto investors but also for the global economy.
Cryptocurrency may have the potential to change the financial system, but in its current form, it resembles a speculative tool rather than a sustainable innovation. The question is not whether this bubble will burst, but when it will happen and who will be left holding the bag.
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