Since the beginning of cryptomonies, even when they were not so popular, there have always been people who claim that Bitcoin is a bubble. In this way, they claim that it will eventually burst and collapse from the outside in, as our great „friend“ Peter Schiff constantly comments. However, thanks to advances in statistics we can answer the question whether there is really a risk of a Bitcoin bubble.
What does the Bitcoin price story tell us?
Index of the risk of a possible Bitcoin bubble
Thanks to the advances in statistics and mathematics we can try to answer the enigmas that the world throws at us, even if it is the one of cryptomonas. They even function as the basis of the entire financial system as we know it, being the tools of analysts and the foundations of institutions.
Therefore, the same tools that are used to study and understand the behavior of traditional assets can be used with crypto-currencies. In this way, the people of LongHash decided to design publications that would explain how confusing the crypt world is.
Thus was born 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 people’s perception of tokens, such as BTC, ETH, BCH or LTC.
To calculate this estimator, they use as meters the price of the token, the market capitalization and the activity of the portfolios. They chose these variables because they were inspired by Gompertz’s mathematical function, since they allow studying the behavior of a variable, such as the risk of Bitcoin becoming 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 „overvalued“ or „undervalued“. Thus, if the indicator’s value 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 explanation of LongHash, where they include the function of your indicator.
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How is the situation at present?
Once we know how the indicator works, we can try to answer the question whether Bitcoin is currently a bubble. The answer, according to LongHash’s estimates, is no, but it’s pretty close. We can see this in the graph of the situation.
Thus, we can see that the indicator shows that although Bitcoin Loophole is starting to „inflate“, indicating that it is slightly overrated. This can be seen by comparing the orange zone with the pink zone. Also, 0.7 is slightly higher than 0.5.
However, it should also be noted that the trend seems to indicate that Bitcoin is heading towards forming a bubble. In addition, two interpretations of the indicator can be made.
It could be that the market capitalization is higher than it should be, or that there is more activity than it should be. Remember that they measure it by comparing it to the token’s price behavior.
To conclude, we would like to know your opinion about the market situation. Although your indicator shows that we are not witnessing a Bitcoin bubble, what do you think?