Billionaire Elon Musk threw $ 1.5 billion into bitcoin before posting on Twitter that its value “seems high.” Microsoft founder Bill Gates, himself a billionaire, recently warned investors against losing shirts with risky cryptocurrencies, telling Bloomberg News that he is not optimistic about bitcoin, partly for environmental reasons. And U.S. Treasury Secretary Janet Yellen said bitcoin is inefficient for effective transactions and is highly speculative.
However, bitcoin is the hot topic that continues to emerge. But given much of the U.S. technological, financial, and political elite skeptical about its usefulness as a medium of exchange and its ability to be a long-term repository of value, many wonder what its value really is. the asset. Here’s what you need to know.
Is Bitcoin trying to dethrone the dollar?
Bitcoin fans say crypto is the future and one day a decentralized global financial system will dethrone investment titans, central banks and government treasuries. They predict that a currency without borders that is not based on any of the old institutions will be the only way to do business.
But because all of this is still aspirational, there is no guarantee that Bitcoin can break through current institutional barriers – and push its value “toward the moon” – the language of cryptography for intergalactic success.
“It could go anywhere,” Peter Tchir, head of macro strategy at Academy Securities, told Al Jazeera. “It simply came to our notice then. You will see a significant push by regulators around the world to correct what is happening. ”
So is bitcoin worthless or heading for half a million dollars?
Naysayers claim that bitcoin is worth every day, while enthusiasts say that the value of a bitcoin is much higher than the approximately $ 50,000 that the cryptocurrency has attracted this week. Currently, the market capitalization of bitcoin is a bit shy of 1 trillion dollars, which makes it by far the most valuable cryptocurrency.
JPMorgan Chase & Co analysts say bitcoin could rise to nearly $ 150,000 over the next decade, while Galaxy Digital’s Mike Novogratz has forecast a valuation of $ 500,000 by 2024.
Why does cryptocurrency tend to be such a speculative investment?
Some experts argue that the dynamic investment of people who gather on bitcoin is a fad, which makes the asset more of a collector’s item, such as fine art. Others have likened it more to a passing trend, a flash-in-the-pan like the tulip craze of the 1630s or the Beanie Babies madness of the 1990s. FOMO investor – fear of losing.
In this way, its value may never have an objective equilibrium point and will always be worth only what buyers are willing to pay. Bitcoin gets value from the perceived deficit and network effects.
Why is blockchain technology important?
Blockchain allows users to check each other’s transactions for the simple purpose of making sure they don’t use the same cryptocurrency twice, as if floating a check. These peer-to-peer transactions are pseudonymous, but not completely anonymous, which means that everything can be tracked in the public register.
After a large-scale disruption to the US Federal Reserve’s payment system disrupted bank transfers and check clearing services this week, many bitcoin supporters claimed on social media that the blockchain could prevent the type of disruptions that hit 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 maritime change in the global financial system that is supported by all the functions of the cryptocurrency.
Can you buy something with bitcoin right now?
At this time, acceptance is still limited. Amazon uses the third-party Purse service to make bitcoin payments for e-commerce products. In 2014, Overstock became the first major online retailer to welcome Bitcoin on its platform. Tesla has also announced that it will soon accept bitcoin as payment for its electric vehicles.
In the world of cryptocurrencies, the old lines have faded and do not fully distinguish coins from securities and commodities.
“We’re moving into a world where value is inherently fluid,” Lewis Cohen, a crypto lawyer, told the Bloomberg Crypto Virtual Summit on Thursday. “In the past, there was a distinction between money and everything else. Now, it’s not so clear. “
But the environmental cost?
The market appetite for bitcoin has caused some doubts to double its criticism that cryptocurrencies are not environmentally friendly.
Exploiting cryptocurrencies involves complex computer calculations to verify transactions, which require massive amounts of electricity to power computers as well as keep them cool. Bitcoin is estimated to use more than 127 terawatt-hours of electricity per year, according to the Cambridge University Center for Alternative Finance.
But bitcoin proponents say the fiat monetary system as a whole needs much more electricity to sustain itself – when the energy needs of banks and other institutions whose equipment and employees keep the dominant dollar are added. Cambridge University researchers acknowledge that it is impossible to know how much electricity bitcoin uses for several reasons, and more data is needed to determine the impact on the environment as a whole, especially since some bitcoin miners have used renewable energy sources to -feed operations.
So should I finish and buy bitcoin?
Increasingly, financial advisers are telling clients to invest a small portion of their portfolios in “digital gold” – about two percent, for example – as a way to diversify risk and gain some of the cryptocurrency.
Nic Carter, co-founder of Coin Metrics, said the value of bitcoin is based on the fact that it is “very transferable and programmable.” Despite the fact that there is no physical use at the moment, it is easy to deliver – not as if you were carrying a suitcase full of gold bars to your bank.
Tchir of the Securities Academy, which is called agnostic bitcoin, points out that of those who talk about it, “most are strongly stimulated. They own it … like a penny stock on steroids. ”
It could go anywhere. But right now, I’m grumpy. You will see a significant push by regulators around the world to correct what is happening.
Going back to that Fed outage, could buying bitcoin be a hedge against system failure?
Bitcoin could be widely adopted as confidence in the financial and political institution continues to erode. The growing lack of faith of some in the conventional economy has led them to invest in cryptocurrencies as a global refuge against the possible collapse of certain industries or countries.
In turn, payment processing companies such as PayPal and Square responded to the demand that customers have for bitcoin by announcing that they will accept it as payment. Investment banks such as Fidelity and Goldman Sachs also add their own exposure and also make it easier for clients to jump on crypto.
“The value of the fiat currency is the productive capacity and assets of a country. Bitcoin, insofar as it becomes an instrument of money, is based on the productive capacity of assets and people around the world, “Caitlin Long, CEO of Avanti Bank & Trust, told Bloomberg Crypto Summit.
Will Bitcoin enrich me?
Only time will tell. Although the bitcoin balloon may soon be calmed by general 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 value.
For those who were lucky enough to buy a bitcoin in March last year, at about $ 5,000, their investment has increased tenfold in the past year. The same cannot be said of those Beanie Babies who gather dust in your basement.