In this modern world of technology, cryptocurrency is the new way of trading the money in an organized and efficient manner. It has changed the views regarding the trading of money in a gigantic way. Regarding this, Bitcoin and Ethereum are the ones which are drastically showing an impact on the market across the globe through their flexibility and the decentralized system. The Bitcoin was first released in 2009 and Ethereum was initially released in mid-2015. The Bitcoin and Ethereum had made the users to directly transact between them which made them easy to transfer their funds, exchanging currencies, various products and services. Then, they are verified by the network nodes through the help of the blockchain.
Performing humungous transactions across the globe, there will be many issues raising regarding various aspects such as security, privacy, etc which will affect the existing cryptocurrencies. This might result in the downfall if the users find it unreliable, untrustworthy and this phenomenon is the bubble where the economic asset value deviates from the fundamental values. The existence of bubbles was presupposed by Garcia and Kristoufek in 2014-15 by examining the feedback loops in the social media to Bitcoin price. Using both the assumptions for intrinsic rate of return and intrinsic level of risk, Cheah and Fry tested for evidence of bubbles in the returns of the Bitcoin. Baek and Elbeck have found proof to suggest that the returns from the Bitcoin internally aren’t from economic factors but are from buyers and sellers. They suggested that Bitcoin is a theoretical investment vehicle and have determined that the Bitcoin must be 26 times more volatile than S&P index by using the de-trended ratios.
Even though Bitcoin was released in 2009, it did not increase above $1 until 2 years. In 2013, it increased above $100. In that year, it rose from $200 to $1050. It took a boom in 2017 from $4000 to $7000 in less than the span of 4 months. Philips along with Yu developed a methodology which would estimate the price bubble. The generalized sup ADF methodology is chosen to test whether there is a timestamp bubble within the given set of data. When they have applied all the variables onto a derived formula, the Bitcoin showed that the bubble might rise in the year 2013-14. The distinct periods are denoted as the bubbles since the Bitcoin has cross the $1000 mark. For the Ethereum, the minimal bubble signals can also be observed but are in bulk in the period of 2016-17.
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As per all the analysis, we can say that in both markets of the Bitcoin as well as the Ethereum there is any lucid proof of such bubble. It is just a presuppose that there are few indications that the Bitcoin might go under the bubble phase because its price is more than that of thousand dollars.
