Boom and bust cycle refers to the business economics cycle where upward trends and downward trends in prices or demand occur. A boom can also be referred to as a period of expansion, while a bust is a period of contraction or recession.
The emergence and boom of cryptocurrencies
Bitcoin was the first ever cryptocurrency to be introduced as it was introduced back in January 2009. The price of one Bitcoin was $0.30 back in 2011 and its current price is $2,279. Since the introduction of Bitcoin eight years ago, more than 700 similar cryptocurrencies have been created.
Most are unknown and their trading volumes, market capitalization, and prices are low.
Boom in the economic and business cycles
With the introduction of a new product or service, especially in the technological sector, prices tend to be lower, but as people become aware of the existence of the product and how it can be beneficial to their daily life, the price will rise. More producers will enter the market and create similar goods and services so as to profit in the venture and thus reducing the price by increasing competition.
The bust of cryptocurrencies
The busts of cryptocurrencies can only be explained in the volatility of their price. For example, the price of one Bitcoin was $0.30 back in 2011 and the currency experienced two busts since its introduction.
In November 2013, its price was $1,149, but it devalued to $638 in just 21 days. Another bust occurred last week when its price moved from $2,763 on May 25 to $1,855 just two days later.
Bust in the economic and business cycles
In a healthy business and economic cycle, as similar producers fight for the same customer, prices go down to unsustainable levels.
Some producers will begin to take losses and others will close down while some will try and operate for some time without profiting. Producers who survive the bust cycle are those whose products are a brand, those who have a significant market share, and those who produce their products in large scale.
The future of cryptocurrencies
In the future, the success of cryptocurrencies will depend on the levels of government regulation. Their success will also depend on their level of acceptance by businesses and consumers. This will be a chicken and egg situation as most companies will only accept cryptocurrencies if it is widely used by the public while the public will use cryptocurrencies if most businesses accept it. The success of cryptocurrencies will depend on their brands and image, how accessible or easily a cryptocurrency can be acquired, and the market share or number of people using a particular cryptocurrency. Most people will prefer to use Bitcoins because they are widely used. There is still room for growth for these types of currencies since they are only used by a few people and in limited locations around the world.
