Today Bitcoin’s price set yet another all time high, this time coming in at $2315 on Bitstamp. With the Japanese exchanges leading the rally, the question on everyone’s mind is: “Are we in another bubble?”
A bubble is when a stock is driven to such a high price by traders, that the underlying assets becomes overvalued. Is Bitcoin overvalued at the current valuation, that is the real question.
In order to assert Bitcoin’s true value we have to look at its competitors, in this case the top 3 are: PayPal, VISA, MasterCard. First let’s compare the market caps:
PayPal is valued at $60.68 billion, VISA’s is $218 billion, MasterCard’s is $129.75 billion. Compare that to Bitcoin’s $38 billion market cap and we see that the cryptocurrency still has some room for growth.
Interestingly enough, it’s not the market cap that is holding Bitcoin back, it is the scalability of the network. To compare each platform’s scalability we will use the transactions per section metric.
PayPal processes over 10 million transactions a day, for an average of 115 tps (transactions per second). VISA and MasterCard handle over 2,000 tps combined, and up to as many as 4,000 transactions on peak days. Guess whats Bitcoin’s transactions per second rate, a disappointing 3 tps.
The problem lies in the fact that even at 3 transactions per second, the network gets congested and the fees rise. This severely limited Bitcoin’s potential when it came to scaling and mass adoption. With the news regarding the agreement on Segwit2Mb, it is evident that Bitcoin’s scaling debate is nearing an end and a solution will be implemented. This is one of the major drivers of this historic price rally. Since the implementation of SegWit and the fork to a 2MB block will ultimately increase Bitcoin’s capacity.
So, is the Bitcoin market currently in a bubble? My answer is no, current political conditions seemed to have created the perfect recipe for cryptocurrency hype, as the technology liberates users in ways traditional platforms can’t.
Also Read: What is Segregated Witness?
Dislaimer: This is not trading advice, this article is for educational purposes only. If you liked this article, follow us on Twitter @themerklenews and make sure to subscribe to our newsletter to receive the latest bitcoin, cryptocurrency, and technology news.