Bitcoin has seen massive increases in its price throughout 2017, hitting record highs continuously along the way. These spikes have led to a lot of people investing in bitcoin and other digital currencies. Now cryptocurrency is something that has jumped over to the mainstream, with a lot of people hearing about bitcoin and the excellent results it has been generating.
Correcting a Bullish Market
There are still many skeptics about the long-term viability of bitcoin, and there is the belief that a massive bubble currently exists in this industry. Well-known investors such as Warren Buffet have been calling bitcoin a bubble for some time now, with many comparing the substantial growth rates with tulip-mania which hit the Netherlands back in the 17th century.
To date at least, bitcoin has made these doubters look silly, as prices continue to rise and rise over time, bouncing back from big dips along the way.
The critical point is that just because something has a price that keeps rising, it doesn’t mean that it is necessarily more valuable over the long run. There are certain levels of frenzy at play currently with bitcoin, with many non-investors trying to get in on the gains that have been made thus far, which is often a warning sign that things are starting to overheat.
It is not inconceivable to think that there is set to be a significant correction in the bitcoin market coming soon, which is something you need to consider if you are currently holding an extended position.
When you start to compare this current asset boom with past iterations, it puts things in perspective. Looking at this chart, you can see that bitcoin has experienced the most significant moves an asset class has seen over the past 395 years, only behind tulip-mania. You can even see that the dot-com bubble of the late 20th century is just a relative blip in comparison.
It is a vicious cycle whereby the more the price rises, the more bullish people get which drives further gains.
Futures Contracts on the Horizon
In the matter of a couple of weeks, there will be the introduction of bitcoin futures contracts, something that could spell disaster for a lot of crypto investors if they are not careful enough.
Up to this moment in time, it has not been particularly smooth for investors with big money to undertake large positions in bitcoin. In particular, it is currently challenging to short bitcoin. Once companies like CME introduce options, hedge funds will have free range over the mostly unregulated market.
These traders will take advantage of the market hype and maximize gains using a variety of instruments that the average bitcoin investor hasn’t even contemplated. There are so many announcements on a daily basis about new ICOs and the constant development of new cryptocurrencies that are hitting their funding targets that the buck has to stop somewhere.
While it is by no means sure that there is going to be a significant correction soon, it is well worth casting an eye over in the weeks following the introduction of bitcoin futures contracts.