FX.co ★ Five reasons why Bitcoin is not a bubble

The digital currency bitcoin rallied by over 300 percent since the start of the year. Unsurprisingly, many financial markets pundits consider such a sharp rally the creation of an asset bubble. However, analysts are confident that Bitcoin has very different fundamentals than early internet stocks and a much more promising growth trajectory.

Means of exchange enshrined in law

One of Bitcoin's biggest challenges so far has been acceptance by lawmakers and financial regulators due to its decentralized nature and its unfortunate association with criminal activities carried out on the dark web. However, Bitcoin's “official” acceptance is on the rise. In April 2017, Japan announced that it would officially begin accepting Bitcoin as a legal payment method. In the near future, many countries will come to this decision, experts are sure.

Increasing merchant adoption

In the early years of Bitcoin, merchant adoption was limited to a few brave ecommerce stores, usually run by early-stage Bitcoin enthusiasts. This, however, has changed substantially as leading tech companies and ecommerce platforms have chosen to accept Bitcoin as a payment method. With bitcoin's sharp price rally, increased media coverage and newfound acceptance in some countries, Bitcoin merchant adoption is on the rise and this trend will likely continue.

Bitcoin is increasingly acting as a store of wealth in distressed economies

Another reason why Bitcoin is most likely not a bubble is that is has a much-need real world application in economically distressed countries. In places such as Venezuela, Bolivia and Zimbabwe, for example, bitcoin has been acting as a store of wealth and as an alternative spending currency as local currencies are weakening into worthlessness. This can be witnessed by increasing bitcoin trading volumes that are negatively correlated with the performance of local currencies and economic growth in distressed regions.

Bitcoin has only just gone mainstream

You could say that 2017 has been the year in which Bitcoin has finally gone mainstream. In 2016, not too many people knew about it and cryptocurrencies. Now that Bitcoin has become mainstream, the buying potential from new investors is immense, especially as institutional investors have started to open up to the idea of investing in bitcoin and other digital currencies.

Bitcoin's supply is limited

One of the key reason why Bitcoin has become so valuable is that its increasing demand is met with a fixed limited supply. Because of the way Bitcoin was created, only 21 million coins can ever be mined. Furthermore, the rate at which new coins are created slows down over time. Experts note that the increasing demand for the digital currency is not only met with a limited total supply but also with a continuously slowing supply.