The value of Bitcoin
Bitcoin entered the arena claiming to be the next big thing in electronic cash. It took a while, but it gained traction with more and more enthusiasts convinced that it would be just that.
Through an unpredictable market, it’s increase in price seemed to reflect that it was indeed on its way to becoming the Next Big Thing, but this same market volatility detracted from its initial aim of being a currency, albeit a virtual one.
Yes, fiat currencies do fluctuate, but definitely not to the degree that Bitcoin does. Take last week. In the span of one day, the price of a single Bitcoin grew from $14k to $18k. Looking at the market today, it’s trading at just under $14k. This volatility may make for excitement and mystery, but it doesn’t do well when Bitcoin is trying to establish itself as a viable alternative currency. In addition, converting Bitcoin to dollars is a tedious, and sometimes expensive, process, which doesn’t help its cause either.
Perhaps Bitcoin can be defined as store of value, as in keeps its value without depreciating. Fiat currency used in economically advanced and stable countries could be referred to as stores of value, if hyperinflation doesn’t occur.
Inflation, in the context of an increase the actual supply of available money, is a moot point for Bitcoin has it has a finite amount, which is 21 million, of coins available. Bitcoin has the potential to be a powerful cash alternative, especially in countries with a high level of government and institutional corruption. However, because it does not currently have all of the usual suspects required for it to be a currency, it has not yet been adopted as a preferred medium of exchange. So, it’s a no for store of value then.
Because its almost a viable cash alternative, perhaps Bitcoin and other cryptos should be referred to as potential currencies. Even though it appears to have no intrinsic value, it does offer investment potential. You could purchase Bitcoin and hold onto it in the hopes that you can sell it when it reaches those high prices. You could also hold onto it until the time that it becomes a possible and widely used fiat alternative. Until then, it’s a bit tricky to determine what its actual value is.
The ‘bubble’ chants have been flying thick and fast as its price continued to soar. The more expensive it became, the more alluring its perceived value became. More investors started to buy, which resulted in higher and higher prices.
However, analysts are of the opinion that whatever goes up, must come down. The price will reach its peak, investors will start to sell and the price will steadily drop.
The thing is, nobody knows when that possible peak will come. Industry professionals such as Michael Novogratz has predicted that Bitcoin will be trading at $50k by the end of next year.
Finding Bitcoin’s value may be tricky, but determining its popularity is easy. Just take a look at any of its growth charts. Over 1000% growth in less than a year is definitely worth mentioning. The big guns at CME, CBOE and Nasdaq think so too, with Bitcoin futures becoming the new kid on the blockchain at these financial firms.
Author : Jack Dean