Was the run up in bitcoin’s prices last year a bubble? 

Joseph Lubin, ethereum co-founder, seems to think so. He said as much in an interview with Bloomberg: “this is something that we’ve seen so many times since 2009 when bitcoin was invented. We’ve seen rises and falls [in cryptocurrency prices] and what many call a bubble and I would agree,” he said. According to him, there have been six big bubbles since bitcoin was released. “Each [bubble] was more epic than the last one but when you look back they seem like pimples on a chart because growth has been exponential,” said Lubin. 

Bitcoin’s biggest price bubble was back in 2013, when the cryptocurrency registered a phenomenal increase of approximately 5,992% in a year. For context, last year it increased by approximately 1840%. However, a look at bitcoin’s price chart since inception proves Lubin’s point about bitcoin’s price bubbles resembling “pimples” due to the digital currency’s constant exponential growth. (See also: Is The Bitcoin Bubble Final Over?)

There have been two consequences of the price bubble in bitcoin, according to Lubin. The first one is a burst of liquidity in the cryptocurrency ecosystem due to the entry of “trader types.” “It’s really the trader types who are moving [prices] around,” he said. 

The second consequence is an explosive growth in the ecosystem. “Each bubble brings attention to our ecosystem,” explained Lubin, adding that there has been a “tremendous surge of activity” with each bubble. The increased activity brings more developers and infrastructure to the fledgling field, resulting in innovation and development of new technologies. As an example, Lubin explained that there has been an increase by two orders of magnitude in developer activity and development of scalability technology to enable more transactions on bitcoin’s network.

How Similar Is Bitcoin’s Price Increase To The Dotcom Bubble?      

Lubin also outlined differences between the dotcom bubble at the turn of the century and bitcoin’s bubble last year. “Things were so slow at that time that there was one collapse and steady growth over time,” he said, referring to the bust in Internet-related stocks in 2000 and the tech industry’s subsequent regeneration. During that time, Internet startups without revenues and sound business models were listed on the stock market in order to mop up money from investors. (See also: 5 Successful Companies That Survived The Dotcom Bubble). The dynamics and pace of the cryptocurrency bubble are different, Lubin says. He suggests that a price increase in crypto is generally followed by a build out of fundamental infrastructure for the technologies and another correction due to investor fears about the future for cryptocurrencies. “I absolutely expect a strong correlation between price and growth,” explained Lubin, adding that growth of infrastructure within crypto will fuel a price increase once again.

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. 

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