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Is there a risk of a Bitcoin bubble?


Since the beginning of cryptocurrencies, even when they weren’t that popular, there have always been people who claim that Bitcoin is a bubble. In this way, they allege that it will eventually explode and collapse from the outside in, as our great “friend”Peter Schiff constantly. However, thanks to advances in statistics, we can answer the question if there really is a risk of a Bitcoin bubble.

Risk index of a possible Bitcoin bubble

Thanks to advances in statistics and mathematics, we can try to answer the enigmas that the world throws at us, even if it is cryptocurrency. They even function as the foundations of the entire financial system as we know it, being the tools of the analysts and the foundations of the institutions.

Therefore, the same tools that are used to study and understand the behavior of traditional assets can be used with cryptocurrencies. In this way, the people of LongHash decided to design publications that explain how confusing the crypto world is.

This is how the “Token Price Bubble Risk“, Being an indicator that studies the possibility that a token, like Bitcoin, becomes a bubble. In practical and simple terms, the indicator seeks to measure the perception that people have about tokens, such as BTC, ETH, BCH or LTC.

To calculate this estimator, they use the token price, market capitalization, and portfolio activity. They chose these variables because they were inspired by the Gompertz mathematical function, since they allow studying the behavior of a variable, such as the risk that Bitcoin becomes a bubble, based on meters that collect the behavior of agents, being BTC and its followers.

In this way, in the case of BTC, the price of the token, its capitalization and the movements of the users, allow us to observe if Bitcoin is “overrated“Or”undervalued“. In this way, if the value of the indicator is in a range of -0.5 to 0.5, the valuation is stable, outside of that, there are problems.

If you want to know in more detail how this indicator works, we invite you to review the LongHash explanation, where they include the function of their indicator.

How is the situation today?

Once we know how the indicator works, we can try to answer the question if Bitcoin is currently a bubble. The answer, according to LongHash estimates, is no, but it’s pretty close. We can see it in the graph of the situation.

Risk that BTC is a bubble. Source: LongHash
Risk that BTC is a bubble. Source: LongHash

In this way, we can see that the indicator shows that while Bitcoin is starting to “inflate”, indicating that it is slightly overvalued. It can be seen by comparing the orange zone with the pink zone. Also, 0.7 is slightly greater than 0.5.

However, it should also be noted that the trend seems to indicate that Bitcoin is heading to form a bubble. Furthermore, two interpretations of the indicator can be made.

It may be that the market capitalization is higher than it should be, or that there is more activity than it should be. Remembering that they measure it by comparing with the token price behavior.

Finally, we would like to know your opinion about the market situation. While your indicator shows that we are not witnessing a Bitcoin bubble, what do you think?

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