Our economy works in a very predictive way, it grows slowly and then suddenly skyrockets, and then crushes, and after a period of time, it starts recovering back, and that process repeats over and over.
The same cycle happens to companies, real estate and the most recently, it happened to bitcoin and other cryptocurrencies. but why does that happens! In the free market, prices are set by the supply and demand, if more people want to buy something, the price naturally increase and vice versa of course, if the demand for iPhones decreases, the price naturally falls down! that’s why gold is expensive, because the supply is limited while there are tons of people who want to buy it. And as long as there will be a demand for gold, prices will stay high!
In 1997, there was a dot com bubble, the internet started exploding, because everybody believed that this is the next big thing. Since everyone wanted to make money, people simply started throwing money at every new tech company, that’s why new companies emerged every day! In fact, over 1300 companies were created during that period and among them were google, amazon and many others. The stock market was going through the roof because everyone was investing, so the media was obsessed about it and never stopped talking about the financial boom that was going on in the stock market, which drove even more people to invest and that led the prices to increase to unbelievable numbers. amazon’s stock price for example increased from less than 2 dollars to over 107 dollars in just 3 years, But as soon as people realized that most of these companies are overvalued, they wanted to get back their money before the market crushes otherwise they will loose all of their investments. And as always media started raising the panic again, that if that this is the end of the world, and that led everyone else to pull out their investments.
And the result was that, Most of these companies went bankrupt and people lost billions of dollars. amazon’s stock price for example, fell to only 7 dollars and the company was on the brink of bankruptcy. Only few companies could survived the crush and today they are leading the tech industry.
The same thing happened in 2008 by the way and now its it is happening to cryptocurrencies, when bitcoin just emerged in 2008, it got a lot of attention from specialists who really understood its potential to replace our current monetary system since it has crushed the entire economy. And over the years, besides attracting more and more people, many other crypto currencies emerged, exactly like in 1997 everyone started a tech company. And in january 2017 when the bitcoin become over 10 thousand dollars.
The media became obsessed about it and started talking about it continuously, attracting massive amount of people who have absolutely no idea what its bitcoin or how does it works, but everyone wanted to make money, so people simply started throwing money into bitcoin and other cryptocurrencies, and many cryptocurrencies emerged every single day and by the end of 2017, there were almost 2 thousand crypto currencies in the market. In fact, there is a website where you can go and create your own cryptocurrency, i have left the link in the description, Anyways, after these massive investments, as soon as people realised that its a bubble, that bitcoin simply doesn’t worth that price, at least for now, a lot of people pulled out their investments which forced the prices to drop, and of course when the media stated reporting that bitcoin’s price is falling, everyone else (especially the ones who dont understand how it works) also started selling their investment, which caused the price to fall even further.
Exactly like what happened in the dot com bubble in 1997. It goes back to the same basic principle of supply and demand! So the main question is, will it grow again! I am not sure exactly about bitcoin, but crypto currencies in general will start becoming more and more popular and probably will not experience such a dramatic growth like last year, and the one that will prove to be more reliable will most likely dominate the market in the coming future!