Had you spent $27 on Bitcoin when it had been developed by Satoshi Nakamoto in 2009 your investment would now be worth over $37,000,000?
Widely regarded as the maximum investment vehicle ever, Bitcoin has seen a meteoric rise during 2017 going from $777 all the way to $17,000.
Creating millionaires out of opportunistic investors and leaving financial institutions open-mouthed, Bitcoin has answered its critics at every milestone this season and some believe this is just the beginning.
The launch of Bitcoin futures on December 10th, which for the first time enables investors to enter the Bitcoin market by way of a major regulated US exchange, implies that we are simply getting started.
What makes Bitcoin so valuable is that there’s a finite amount in existence. There may only ever be no more than 21 million Bitcoins and unlike normal fiat currencies, you can’t just print more of these whenever you feel like. The reason being Bitcoin runs on a proof of work protocol: in order to create it, you’ve to mine it using computer processing power to solve complex algorithms on the Bitcoin blockchain. Once this is achieved, you’re rewarded with Bitcoin as payment for the “work” you’ve done. Unfortunately, the reward you obtain for mining has decreased drastically almost each year since Bitcoin’s inception, meaning for most of us the sole viable way to have Bitcoin is buying it on an exchange. At the current price levels is a risk worth taking?
Many believe Bitcoin is merely a bubble. I spoke to cryptocurrency expert and long haul investor Duke Randal who thinks the asset is overvalued, “I would compare this to many supply and demand bubbles over histories such as for instance Dutch Tulip Mania and the dot com bubble of the late 90s. Prices are purely speculation based, and whenever you look at Bitcoin’s functionality being an actual currency it is practically embarrassing.” For folks who don’t know, the dot com bubble was a period of time between 1997-2001 where many internet companies were founded and given outrageously optimistic valuations based purely on speculation that later plummeted 80-90% since the bubble started to collapse in the first 2000s. Some companies such as for instance eBay and Amazon recovered and now sit far above those valuations however for others, it had been the conclusion of the line.
Bitcoin was originally created in order to take power far from our financial systems and put people in control of their own money, eliminating the middle man and enabling peer to peer transactions bitcoin mixer. However, it is now one of many slowest cryptocurrencies in the marketplace, its transaction speed is four times slower compared to fifth biggest cryptocurrency and its nearest competitor for payment solutions Litecoin. Untraceable privacy coin Monero makes transactions even quicker, boasting the average block time of just two minutes, a fifth of times Bitcoin can get it done in, and that’s without anonymity. The world’s second biggest cryptocurrency, Ethereum, already features a higher transaction volume than Bitcoin despite being valued of them costing only $676 dollars per Ether compared to Bitcoin’s $16,726 per Bitcoin.
So why is Bitcoin’s value so high? I asked Duke Randal exactly the same question. “Everything dates back to exactly the same supply and demand economics, relatively there is not greatly Bitcoin available and its recent surge in price has attracted plenty of media attention, this combined with the launch of Bitcoin futures which many see as the first sign Bitcoin has been accepted by the mass market, has led to plenty of people jumping on the bandwagon for financial gain. Like any asset, when there is a higher demand to get than to market, the price goes up. That is bad because these new investors are entering the marketplace without understanding blockchain and the underlying principles of the currencies meaning they will likely get burnt “.
Another reason is that Bitcoin is extremely volatile, it has been proven to swing up or down 1000s of dollars in less than a moment which if you should be not used to nor expecting it, causes less experienced investors to panic sell, resulting in a loss. That is yet another reason Bitcoin will battle to be adopted as an application of payment. The Bitcoin price can move substantially between enough time vendors accept Bitcoin from customers and sell it on to exchanges because of their local currency. This erratic movement can get rid of their entire profitability. Will this instability go away any time soon? Not likely: Bitcoin is really a relatively new asset class and although awareness is increasing, only a tiny percentage of the world’s population hold Bitcoin. Until it becomes more widely distributed and its liquidity improves significantly, the volatility will continue.
So if Bitcoin is pretty useless being an actual currency, what are its applications? Many believe Bitcoin has shifted from being a feasible form of payment to being a store of value. Bitcoin is similar to “digital gold” and will just be properly used as a benchmark for other cryptocurrencies and blockchain projects to be measured against and traded for. Recently there were stories of people in high inflation countries such as for instance Zimbabwe buying Bitcoin in order to retain what wealth they’ve rather than see its value decline underneath the recklessness of its central banking system.
Can it be too late to get involved with Bitcoin? If you rely on what these cryptocurrencies can do for the planet then it is never too late to have involved, but with the cost of Bitcoin being so high is it a ship for many which has already sailed. You could be better off having a glance at Litecoin, up 6908% for the year or Ethereum that is up an amazing 7521% for the year. These newer, faster currencies hope to attain what Bitcoin first set out to do in its inception in 2009 and replace government-run fiat currencies.
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