Had you spent $27 on Bitcoin when it was produced by Satoshi Nakamoto in 2009 your investment would now be worth over $37,000,000?
Widely regarded as the greatest investment vehicle of all time, Bitcoin has seen a meteoric rise during 2017 going from $777 all how you can $17,000.
Creating millionaires out of opportunistic investors and leaving financial institutions open-mouthed, Bitcoin has answered its critics at every milestone in 2010 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 through a major regulated US exchange, implies that people are simply getting started.
What makes Bitcoin so valuable is that there is a finite amount in existence. There may only ever be a maximum of 21 million Bitcoins and unlike normal fiat currencies, you can’t just print more of them whenever you feel like. This is because Bitcoin runs on a proof of work protocol: to be able to create it, you’ve to mine it using computer processing power to resolve complex algorithms on the Bitcoin blockchain. Once this is achieved, you are rewarded with Bitcoin as payment for the “work” you’ve done. Unfortunately, the reward you get for mining has decreased drastically almost each year since Bitcoin’s inception, which means that for most of us the only real viable way to get Bitcoin is buying it on an exchange. At the present price levels is that the risk worth taking?
Many believe Bitcoin is simply a bubble. I spoke to cryptocurrency expert and long term investor Duke Randal who thinks the asset is overvalued, “I would compare this to many supply and demand bubbles over histories such as 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 an interval between 1997-2001 where many internet companies were founded and given outrageously optimistic valuations based purely on speculation that later plummeted 80-90% because the bubble started initially to collapse in early 2000s. Some companies such as eBay and Amazon recovered and now sit far above those valuations but also for others, it was the finish of the line.
Bitcoin was originally created to be able to take power from our financial systems and put people in control of their particular money, reducing the center man and enabling peer to peer transactions bitcoin mixer. However, it is now one of the slowest cryptocurrencies in the marketplace, its transaction speed is four times slower compared to the 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 the time Bitcoin can do it in, and that’s without anonymity. The world’s second biggest cryptocurrency, Ethereum, already includes a higher transaction volume than Bitcoin despite being valued at only $676 dollars per Ether compared to Bitcoin’s $16,726 per Bitcoin.
So how come Bitcoin’s value so high? I asked Duke Randal exactly the same question. “Everything extends back to exactly the same supply and demand economics, relatively there is not quite definitely Bitcoin available and its recent surge in price has attracted a lot of media attention, this with the launch of Bitcoin futures which many see as the first sign Bitcoin has been accepted by the mass market, has led to a lot of people jumping on the bandwagon for financial gain. Like any asset, if you find a greater demand to buy than to offer, the price goes up. That is bad since these new investors are entering industry without understanding blockchain and the underlying principles of the currencies meaning they will likely get burnt “.
Another reason is that Bitcoin is incredibly volatile, it’s been proven to swing up or down tens of thousands of dollars within just a minute which if you are not used to nor expecting it, causes less experienced investors to panic sell, causing a loss. That is just one more reason Bitcoin will struggle to be adopted as a questionnaire of payment. The Bitcoin price can move substantially between the time vendors accept Bitcoin from customers and sell it onto exchanges for his or her local currency. This erratic movement can wipe out their entire profitability. Will this instability go away anytime soon? Improbable: Bitcoin is really a relatively new asset class and although awareness is increasing, only a really small 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 managed to move on from being a viable type of payment to being a store of value. Bitcoin is similar to “digital gold” and only will 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 Zimbabwe buying Bitcoin to be able to hold on to what wealth they’ve as opposed to see its value decline underneath the recklessness of its central banking system.
Can it be too late to try Bitcoin? If you believe in what these cryptocurrencies can do for the planet then it is never too late to get involved, but with the price of Bitcoin being so high could it be a vessel for some that has already sailed. You could be better off having a glance at Litecoin, up 6908% for the season 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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