Although the recent rally may be met with a market correction, there are several factors that will support Bitcoin and help it recover in the event of a bubble burst.
Consider that the bottom falls out, and the price plummets, panic selling ensues, total pandemonium, right?
Then it follows that:
- Mining becomes unprofitable with the lower price, many miners are forced to shutdown
- The time to confirm a block skyrockets
2a) Transaction confirmations are now at a premium, with increased Tx fees, which provide incentive to the remaining miners
2b) The next difficulty adjustment helps compensate for lost hashing power - Recovery begins, as mining becomes profitable with lowered difficulty and increased fees, restoring confidence and the price starts ascending again.
The risk of a bubble is very real, but will be self correcting. A huge difficulty with Bitcoin is trying to determine a valuation, and while it may be overvalued today, there could be news tomorrow that changes that perception entirely. John McAfee just went on record forecasting Bitcoin at $500k in three years. For most people that sounds ridiculous, but what if he is right?
completely agree but there are few issues that make carnage in the next price collapse, a forgone conclusion.
I have been watching groups of solo-preneurs expanding very rapidly getting on the bitcoin bandwagon and encouraging others to buy into bitcoin with them. some even recommennd borrowing to get in on it. Right now the price is rocketing skywards.
This bascially means that the moment it turns there will be a whole bunch of people that get out ok with a good profit. but most of the rest will not. The price will fall to earth (only temporarily I agree and veterans will buy in at that point too) but when it falls probably ,many hundreds of thousands of people will have their credit card debts remain while their dreams of bitcoin riches disappear in a moment because they could not get out in time.
the key issue is UNREGULATED. no protection or insurance and no legal demand for STOPS to be in place this is worse than 1987 when traders could go crazy because it is so much more expensive and so much more accessible to the laymen/women.
the other key issue is ANYONE can get in and most of these people have ZERO training in Trading and the problems rookies face chasing the TOPS of rising currencies or stocks.
Best case scenario right now, is that a lot of people get out before it gets too much higher.
regardless a lot coming in before the final fall will be losers. depends how far it falls as the fall from this point of $8000 to $1000 will very likely wipe out exchanges far worse than Mt Gox did. No money is protected out there, never mind the scams and hackers.
worst case, now is sadly the most likely too, especially if this continues to rise like it is, that people buying in now, and not getting out until late, will not get out.
I predict a bloodbath. its too late to stop it, the only question is how many people will have their lives ruined when the price eventually crashes.
sure the rest of us will buy back in and the cycle will repeat but the sheer numbers of people moving into bitcoin each day right now is in the 100,000 per day something insane like that. most of whom have no idea what they are getting involved with.
I fully believe bitcoin price will reach 20,000 , 50,000 100,000 and could go to a million ,but think of the damage it will do if this keeps going on. If you listen to people out there coming in now they think it can ONLY go up, many people are putting big debts into buying bitcoin on this assumption. Bascially the higher it goes now, the harder and bigger the damage globally when it falls.
I truly believe the longer it takes, the bigger the global wipe out and knock on effect will be in other areas because of instant massive debt it will cause, and that will trigger a hell of a GFC.
sure, some will be alright because they are in it without any debt to do so, and in it early. so for them its free money, but its a zero sum game for the rest , the late comers, who will be giving the early investors millions in the process of going into debt they can never hope to get out of when it does drop.
That will kill a lot of people, that is actually the sad bit.