It all depends on what you mean by “bubble” and how long your time horizon is. I’ll explain in two points.

A “Bubble”

There are a lot of definitions of a bubble and economists can’t really agree on what they mean. Usually, it means something that has gone up a lot in value, over a short period of time, and then loses a lot.

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Conceptually, then, it’s really difficult to tell whether you are in a bubble—since the official verdict depends on having a crash.

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It’s also unclear how big the crash has to be for the bubble to have ended.

Finally, is it a bubble if the same asset comes back after the crash?

Here are Bitcoin’s present lows (about 52% from its height of $64k) with some standard moving averages that momentum traders (like me) use to sell.

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And here is Bitcoin crashing after the 2017 bubble.

I have that marked at $6200 roughly. Is that the end of a bubble? I mean, if you bought then you would still be up 500%. Does that mean you should buy at the end of a bubble?

The scary sense of a bubble is like the South Sea where Isaac Newton lost a lot of money.

So, the only bad bubble is the one that doesn’t come back. I think some people believe Bitcoin is still like the South Sea bubble, despite coming back year after year for 11 years.

For me, bubble’s like Bitcoin are rare phenomena, since you can miss the first (or several) waves, get in late, and then just wait a few years for the market to come back 10x.

In the good sense, then, I think Bitcoin is a bubble.

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El Salvador

One country legalizing Bitcoin is a helpful proof of concept immediately. The real demand for Bitcoin, though, will take a while.

The World Bank, for example, just rejected El Salvador’s request to get help in setting Bitcoin up as legal tender. Of course a financial institution that is propped up with old money doesn’t like the new money.

So, the rejection is foreseeable. But that does nothing to negate the fact that El Salvador probably won’t have a great system in place to make Bitcoin usable for some time. It might take 12 months before it all works smoothly.

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Concluding Thoughts

Bitcoin is a bubble in the good sense. El Salvador is good news in the long run.

In the next couple of weeks, Bitcoin is going to follow general market pressure.

China just banned a lot of Bitcoin miners and those miners are forced to sell immediately to get whatever money they have to move. That’s what’s causing the current sell-off. They’ve only got 10% of miners left to ban, so this can’t go on forever.