Billionaire Elon Musk threw $ 1.5 billion into bitcoin before tweeting that its value “looks high”. Microsoft founder Bill Gates, a major billionaire, recently warned investors to lose their shirts with a risky cryptocurrency. And U.S. Treasury Secretary Janet Yellen said bitcoin is inefficient for executing transactions and that it is highly speculative.
Yet bitcoin is the popular topic that keeps popping up. But because so many of the American technological, financial, and political elites are skeptical about its usefulness as a medium of exchange and its ability to be a long-term value store, many people wonder what the asset is really worth. Here’s what you need to know.
Is bitcoin trying to dethrone the dollar?
Bitcoin fans say that crypto is the future and one day a decentralized global financial system will dethrone the investment titans, central banks and state coffers. They predict that the only way to do business will be to have a limitless currency that does not rely on any of the old institutions.
But because it is still aspiring, there is no guarantee that bitcoin can break through current institutional barriers – and push its value “to the moon” – a cryptocurrency for intergalactic success.
“It can go anywhere,” Peter Tchir, head of macro-strategy at Academy Securities, told Al Jazeera. ‘But at the moment I’m clumsy. You see significant setbacks by regulators around the world to determine what’s going on. ”
Is bitcoin then worth nothing or on its way to half a million dollars?
Naysayers claim that bitcoin is literally worth zilch, while enthusiasts say the value of one bitcoin is much higher than the roughly $ 50,000 on which the cryptocurrency soared this week. At the moment, the market capitalization of bitcoin is a bit shy of $ 1 trillion, making it by far the most valuable cryptocurrency.
JPMorgan Chase & Co analysts said bitcoin’s value could rise to nearly $ 150,000 over the next decade, while Mike Novogratz at Galaxy Digital predicts a $ 500,000 valuation by 2024.
Why does it tend to be such a speculative investment?
Some experts argue that the momentum invested by people hoping for bitcoin is a fad, which makes the asset more like a collectible, like visual arts. Others compared it more to a fleeting trend, a flash-in-the-pan like the tulip mania of the 1630s or the Beanie Babies craze of the 1990s. At the moment, the appeal of bitcoin is based on flash marketing and investor FOMO – the fear of missing out.
In this way, its value may have no objective equilibrium, and it will always be only worth what buyers are willing to pay. Bitcoin derives value from its perceived scarcity and network effects.
Why is blockchain technology important?
With Blockchain, users can verify each other’s transactions with the aim of making sure they do not use the same cryptocurrency twice, such as driving a check. These peer-to-peer transactions are pseudonymous, but not completely anonymous, meaning that everything can be traced in the public ledger.
After a widespread payment system disruption at the US Federal Reserve this week disrupted bank transfers and clearing services, many bitcoin supporters argued on social media that blockchain could prevent the kind of disruptions hitting the Fed.
Some critics who claim that bitcoin is too volatile still see the potential for the blockchain system to be widely used. Meanwhile, bitcoin’s supporters are seeing a global financial system changing through the features of cryptocurrency.
Can you really buy something with bitcoin now?
At present, acceptance is still limited. Amazon uses a third-party wallet to take bitcoin payments for e-commerce products. In 2014, Overstock becomes the first major online retailer to welcome bitcoin on its platform. And Tesla has also announced that it will soon accept bitcoin as payment for its electric vehicles.
In the cryptocurrency world, the old lines have faded and currencies are not completely distinguished from securities and commodities.
“We’re moving to a world where value is inherently fluid,” crypto lawyer Lewis Cohen said at the Bloomberg Crypto Summit virtual Thursday. ‘In the past, there was a distinction between money and everyone else. It’s not so clear now. ‘
What about the environmental costs?
The appetite of bitcoin in the market has prompted some doubters to double their criticism of the fact that cryptocurrency is environmentally unfriendly.
Mining for cryptocurrency involves complex computer calculations to verify transactions, which require large amounts of electricity to power the computers and to keep them cool. Bitcoin is estimated to use more than 127 terawatt-hours of electricity per year, according to modeling by the Center for Alternative Finance at the University of Cambridge.
But bitcoin defenders say the fiat currency system as a whole needs a lot more electricity to maintain – if the power needs of banks and other institutions whose equipment and employees keep the dollar dominant are added together. Researchers at the University of Cambridge acknowledge that it is impossible to know how much electricity bitcoin uses for different reasons, and more data are needed to determine its impact on the environment as a whole, especially as some bitcoin miners use renewable energy sources to to drive operations.
So should I run out and buy bitcoin?
Increasingly, financial advisers are telling their clients to invest a small fraction of their portfolios in ‘digital gold’ – for example about two percent – as a way to diversify risks and get a share of the cryptocurrency action.
Nic Carter, co-founder of Coin Metrics, said the value of bitcoin is based on the fact that it is ‘highly transferable and programmable’. Although there is currently no physical use for it, it is easy to deliver – not like pulling a suitcase full of gold bars to your couch.
Tchir of Academy Securities, who calls himself bitcoin agnostic, points out that of the people who talk about it, ‘most are strongly encouraged. They own it … like a penny on steroids. “
It can go anywhere. But at the moment I’m clumsy. You see significant setbacks by regulators around the world to determine what’s going on.
If you go back to the Fed halt, could buying bitcoin be a hedge against system failure?
Bitcoin can be adopted more widely as confidence in the financial and political institution continues to erode. Some people’s growing lack of confidence in conventional economies has driven them to invest in cryptocurrency as a global refuge against the possible collapse of certain industries or countries.
In turn, payment processing companies like PayPal and Square responded to the demand that customers have for bitcoin by announcing that they would accept it as payment. And investment banks like Fidelity and Goldman Sachs are contributing to their own exposure and also making it easier for clients to jump on the crypto bandwagon.
‘The value of fiat currency is the production capacity and the assets in a country. Bitcoin, as far as it becomes a currency, is leveraging the productive capacity of assets and people around the world, ‘Caitlin Long, CEO of Avanti Bank & Trust, told the Bloomberg Crypto Summit.
Is bitcoin going to make me rich?
Only time will tell. Although bitcoin’s bubble may soon be softened by the adoption of the mainstream, the future is unpredictable for the world’s dominant cryptocurrency. And its popularity can be a testament to an irrational frenzy, or a true sign of its growing international presence and value.
For those who were lucky enough to buy one bitcoin in March last year at about $ 5,000, their investment has grown about tenfold over the past year. The same cannot be said for the Beanie Babies who collect dust in your basement.