As digital currencies have exploded, rising up to a total value of more than $700 billion just this week, there have been prominent voices on both sides of the coin. Investors have piled on to take advantage of rapid gains in bitcoin, ethereum, ripple, and other virtual currencies, but at the same time, some of the biggest names in the finance world have disparaged the cryptocurrency space, calling it a bubble or worse.
In a recent interview with Coin Desk, ShapeShift CEO Erik Voorhees, a long-time proponent of digital currencies, admits that he believes the digital currency space to be susceptible to the bubble phenomenon. However, while there has been ample talk in recent months about the digital currency bubble, he goes farther than just that; Voorhees suggests that there are actually two different bubbles taking place at this point.
A Tale of Two Bubbles: Bitcoin and Altcoins
According to Voorhees, "bitcoin is more relevant than ever, but along with it has grown a number of other digital assets." Among the most prominent of these other digital assets are the so-called altcoins, any of a growing number of alternative digital currencies which were modeled after bitcoin in some fashion and which, in most cases, purport to be better than bitcoin in some way.
Voorhees cites ethereum, suggesting that ether "had a far bigger run this year than bitcoin did, and yet bitcoin has more transactions, more users, more market cap than it ever has before."
On one hand, this is all good news for the cryptocurrency space. "I think it proves the point that I've been arguing for a long time, that crypto assets are not mutually exclusive," Voorhees said. "That they don't grow by just competing with each other. The entire industry is growing by competing with traditional finance."
On the other hand, and perhaps because "the average person just holds some as a speculative investment," and because of the fact that "nobody and no company and no group of people can control" the cryptocurrency world, Voorhees believes we are in a number of bubbles.
He sees bubble behavior "in alts since ethereum's rise and in bitcoin this fall. Both are still in their bubble-y phase, and I don't know how high the bubble will go or how far it will crash. But they're definitely in bubbles."
Voorhees continued: "I think bitcoin will trade lower than it is today sometime in 2018. But I've been through a number of these bubbles. More of them will happen. And long term, if this stuff takes over the world, the best strategy is just buy it and hold it. But anyone who is buying it and just thinking it's going to go up immediately and they'll cash out and make a bunch of money is probably going to get hurt."
Double Bubble Trouble?
What could it mean if there are actually two bubbles instead of one broader digital currency bubble? Perhaps these bubbles would burst differently and at different times? It has been notoriously difficult to predict what digital currencies will do, and it's not necessarily the case that a bitcoin bubble burst would be timed alongside an altcoin bubble burst.
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