It’s hard to say when the crypto bubble will burst, or if it will

Despite their volatile and sometimes difficult to control nature, cryptocurrencies are becoming more widely traded, used and held – El Salvador recently started accept Bitcoin as legal tenderthe The Federal Reserve is studying whether to issue their own digital currency and asset managers are encouraging clients to explore crypto assets.

So how does a new investor understand cryptocurrency and its ever-changing landscape?

Short answer: Impossible.

There are so few reliable measures of value that it’s hard to know if the excitement around a particular cryptocurrency is justifiable – or a bubble about to burst. Traditional financial analysis does not apply here. For example, a stock analyst determines whether a company’s stock is expensive or cheap by assessing its business model, future prospects, and leadership. But few, if any, of those metrics translate to crypto valuations. Trust alone can drive value.

It is difficult to know what is considered “cryptocurrency”. Bitcoin and Ether are considered by many to be currencies because, like the dollar or pound, they are used to buy and sell a variety of goods and services. More than 11,000 other cryptocurrencies and tokens also exist, many of them vying for enough adoption to be the next Bitcoin or Ether.

(Coins operate on their own digital platform, called blockchain. Tokens rely on other blockchains to move around in cyberspace. Coins, tokens, and other assets are stored. stored in a wallet, comparable to an online bank account except that their holdings are visible to everyone. )

By standard measures of value, the price of Bitcoin and Ether is understandable. They are highly valued — with a market capitalization on Wednesday of nearly $690 billion and $290 billion respectively — because they are well-established and liquid, with a broad user base. According to Chainalysis, a data provider, Bitcoin is held in nearly nine million wallets.

But there are many other coins and tokens whose prices have skyrocketed, giving them a market value of over $1 billion even though they only have 100,000 users or so. It’s hard to say when the crypto bubble will burst, or if it will

Fry Electronics Team

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