A bubble is an economic cycle characterized by the rapid escalation in the price of assets. This fast escalation is followed by a quick decrease in value or a contraction.
A bubble refers to the situation when an asset is traded at a price exceeding that asset’s intrinsic value. For many years, a lot of people claim that cryptocurrencies (and particularly Bitcoin) are a bubble. They insist that the price of a given coin, or of digital assets generally, is far higher than their “real” value. Concern over a potential crypto bubble reached its peak around 2018 when the market capitalization of cryptocurrencies soared as high as $800 billion back then.
The assertion about cryptocurrencies as a bubble stems from the low levels of adoption of currencies such as Bitcoin within the “real” economy such as the inability to buy a meal in a restaurant or pay for most services using Bitcoin.
With the emergence of decentralized finance (DeFi), however, speculations regarding the crypto bubble can finally be put to rest, as many believe this to be proof of crypto’s true utility. DeFi uses blockchain technology as a basis to build alternatives to traditional financial products such as loans and insurance.