Bitcoin: All It’s Hyped Up to Be?

Got you spent $27 on Bitcoin in order to was created by Satoshi Nakamoto last year 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 the way to $17, 1000.
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Creating millionaires out of opportunistic traders and leaving financial institutions open-mouthed, Bitcoin has answered its critics each and every milestone this year and some believe this is just the beginning.

The launch associated with Bitcoin futures on December tenth, which for the first time will allow investors in order to enter the Bitcoin market through a major regulated US exchange, implies that we are just getting started.

What makes Bitcoin therefore valuable is that there is a finite amount in existence. There will only ever be a maximum of 21 million Bitcoins plus unlike normal fiat currencies on the phone to just print more of them when you feel like. This is because Bitcoin runs on the proof of work protocol: in order to create it, you have to mine it making use of computer processing power to solve complex algorithms on the Bitcoin blockchain. Once this is achieved, you are rewarded along with Bitcoin as payment for the “work” you have done. Unfortunately the reward you get for mining has reduced drastically almost every year since Bitcoin’s inception, which means that for most people the only viable way to get Bitcoin is buying it on an exchange. At the present price levels is that a risk worth taking?

Many believe Bitcoin is simply bubble. I spoke to cryptocurrency expert and long term investor Fight it out Randal who thinks the resource is overvalued, “I would compare this to many supply and demand bubbles over history such as Nederlander Tulip Mania and the dot possuindo bubble of the late 90s. Prices are purely speculation based, and when you look at Bitcoin’s functionality being an actual currency it is almost uncomfortable. ” For those who don’t know, the dot com bubble was a period between 1997-2001 where many internet businesses were founded and given outrageously optimistic valuations based purely upon speculation that later plummeted 80-90% as the bubble began to collapse in the early 2000s. Some companies like eBay and Amazon, recovered and now sit far above those valuations but for others it was the end of the line.

Bitcoin was originally produced in order to take power away from the financial systems and put people in charge of their own money, cutting out the middle man and enabling peer to peer dealings. However , it is now one of the slowest cryptocurrencies on the market, its transaction speed is definitely four times slower than the 5th biggest cryptocurrency and its nearest competitor for payment solutions Litecoin. Untraceable privacy coin Monero makes dealings even quicker, boasting an average prevent time of just two minutes, a fifth of the time Bitcoin can do this in, and that’s without anonymity. The particular world’s second biggest cryptocurrency, Ethereum, already has a higher transaction volume than Bitcoin despite being valued at only $676 dollars per Azure compared to Bitcoin’s $16, 726 per Bitcoin.

So why is Bitcoin’s worth so high? I asked Duke Randal the same question. “It just about all goes back to the same supply and demand economics, relatively there is not completely Bitcoin available and its recent rise in price has attracted a lot of mass media attention, this combined with the launch associated with Bitcoin futures which many discover as the first sign Bitcoin has been accepted by the mass market, provides resulted in a lot of people jumping on the bandwagon for financial gain. Like any asset, if you have a higher demand to buy than to market, the price goes up. This is bad because these new investors are entering the market without understanding blockchain and the root principles of these currencies meaning they may be likely to get burnt”.

Another reason is that Bitcoin is extremely volatile, it has been known to swing up or down lots of money in less than a minute which if you are not used to nor expecting it, causes much less experienced investors to panic market, resulting in a loss. This is yet another cause Bitcoin will struggle to be used as a form of payment. The Bitcoin price can move substantially between the time vendors accept Bitcoin from customers and sell it on to exchanges for their local currency. This inconsistent movement can wipe out their entire profitability. Will this instability go away any time soon? Not likely: Bitcoin is a relatively new asset class and although awareness is increasing, only a really small percentage of the world’s population keep Bitcoin. Until it becomes more widely distributed and its liquidity improves significantly, the volatility will continue.

So if Bitcoin is pretty useless as an actual currency, what are its applications? Many think Bitcoin has moved on from as being a viable form of payment to becoming a store of value. Bitcoin is much like “digital gold” and will simply be used as a benchmark for other cryptocurrencies and blockchain projects to be measured against and traded for. Lately there have been stories of people in high inflation countries such as Zimbabwe purchasing Bitcoin in order to hold on to what wealth they have rather than see its value decline under the recklessness of its central banking system.

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