Billionaire Elon Musk invested $ 1.5 billion in Bitcoin before tweeting that its value “seems high.” Microsoft founder Bill Gates, himself a centibillionaire, recently warned investors against losing their shirts with risky cryptocurrency, telling Bloomberg News he was not bullish on bitcoin, in part for environmental reasons. And United States Secretary of the Treasury Janet Yellen said bitcoin was inefficient at transacting and was highly speculative.
Yet bitcoin is the hot topic that keeps popping up. But with so many of America’s tech, financial, and political elite skeptical of its usefulness as a medium of exchange and its ability to be a long-term store of value, many wonder what this asset is really worth. . Here’s what you need to know.
Is Bitcoin Trying To Dethrone The Dollar?
Bitcoin fans say crypto is the future and that one day a decentralized global financial system will dethrone investment titans, central banks and government treasuries. They predict that a borderless currency that does not depend on any of the old institutions will be the only way to do business.
But since all of this is still ambitious, there is no guarantee that bitcoin can break through current institutional barriers – and push its value “to the moon” – the cryptographic language of intergalactic success.
“It could go anywhere,” Peter Tchir, head of macroeconomic strategy at Academy Securities, told Al Jazeera. “But at the moment I’m bearish. You will see regulators all over the world significantly pushing back what is happening. “
So, is bitcoin worth nothing or is it on its way to half a million dollars?
Opponents claim bitcoin is literally worth zilch, while enthusiasts say a bitcoin’s value is much higher than the roughly $ 50,000 the cryptocurrency has been hovering over this week. Right now, bitcoin’s market cap is just under $ 1 trillion, making it by far the most valuable cryptocurrency.
Analysts at JPMorgan Chase & Co said bitcoin could reach nearly $ 150,000 in value over the next decade, while Galaxy Digital’s Mike Novogratz predicted a valuation of $ 500,000 by 2024.
Why does cryptocurrency tend to be such a speculative investment?
Some experts claim that the dynamic investment of people who stack on bitcoin is a fad, making the asset more of a collectible, such as fine art. Others likened 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. both on flashy marketing and on the FOMO investor – fear of missing out.
In this way, its value may never have an objective point of equilibrium and instead will always be worth what the buyers are willing to pay. Bitcoin derives its value from its perceived scarcity and network effects.
Why is blockchain technology important?
The blockchain allows users to verify each other’s transactions for the simple purpose of ensuring that they aren’t using the same cryptocurrency twice, much like floating a check. These peer-to-peer transactions are pseudonymous but not completely anonymous, which means everything can be traced in the public ledger.
After a widespread outage in the U.S. Federal Reserve’s payment system disrupted wire transfers and check clearing services this week, many Bitcoin supporters argued on social media that blockchain could prevent the type 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 supporters see a sea change in the global financial system underway, underpinned by all of the cryptocurrency’s functions.
Can you buy something with Bitcoin right now?
At the moment, acceptance is still limited. Amazon uses the third-party Purse service to accept bitcoin payments for e-commerce products. In 2014, Overstock became the first major online retailer to host bitcoin on its platform. And Tesla has also announced that it will soon accept bitcoin as a payment method for its electric vehicles.
In the world of cryptocurrency, the old lines are blurry and do not completely distinguish currencies from securities and commodities.
“We are moving towards a world where value is inherently fluid,” cryptocurrency lawyer Lewis Cohen said Thursday at the Bloomberg Crypto virtual summit. “In the past, there was a distinction between money and everything else. Now it is not so clear.
What about the environmental cost?
The market’s appetite for bitcoin has prompted some skeptics to double down on their criticisms that cryptocurrency is not environmentally friendly.
Cryptocurrency mining involves complex computer calculations to verify transactions, which requires huge amounts of electricity to power computers and keep them cool. Bitcoin is estimated to use over 127 terawatt hours of electricity per year, according to modeling by the Center for Alternative Finance at the University of Cambridge.
But bitcoin advocates say the fiat currency system as a whole requires a lot more electricity to maintain – adding up the energy needs of banks and other institutions whose equipment and employees keep the dollar dominant. Researchers at the University of Cambridge recognize that it is impossible to know how much electricity bitcoin uses for a variety of reasons and that more data is needed to determine its overall environmental impact, especially because some bitcoin miners have used renewable energy sources to power their 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” – around 2%, for example – in order to diversify risk and get a share of the money. cryptocurrency share.
Nic Carter, co-founder of Coin Metrics, said bitcoin’s value is based on being “highly transferable and programmable.” While there is no physical use at the moment, it is easily deliverable – not like carrying a suitcase full of gold bars to your bank.
Tchir of Academy Securities, who calls himself a bitcoin agnostic, points out that among the people who talk about it, “most are highly motivated. They own it… like a dime on steroids.
It could go anywhere. But at the moment, I am bearish. You will see regulators all over the world significantly pushing back what is happening.
Coming back to this Fed breakdown, could buying bitcoin be a protection against a system failure?
Bitcoin could become more widely adopted as confidence in the financial and political establishment continues to erode. The growing lack of confidence some people have in the mainstream economy has driven them to invest in cryptocurrency as a global safe haven from the possible collapse of certain industries or countries.
In turn, payment processors such as PayPal and Square have responded to customer demand for bitcoin by announcing that they will accept it as payment. And investment banks like Fidelity and Goldman Sachs are adding to their own exposure and also making it easier for clients to jump on the crypto bandwagon.
“The value of fiat money is the productive capacity and assets of a country. Bitcoin, to the extent that it becomes a monetary instrument, relies on the productive capacity of assets and people around the world, ”Caitlin Long, CEO of Avanti Bank & Trust, told the Bloomberg Crypto Summit.
Will bitcoin make me rich?
Only time will tell. While the Bitcoin bubble may soon be softened by mainstream adoption, the future is unpredictable for the world’s dominant cryptocurrency. And its popularity could be evidence of an irrational frenzy, or a real sign of its ever-increasing international prevalence – and its value.
For those who were lucky enough to buy bitcoin last March at around $ 5,000, their investment has increased tenfold over the past year. The same can’t be said for those Beanie Babies collecting dust in your basement.