Billionaire Elon Musk threw $ 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, saying part for environmental reasons. And United States Treasury Secretary 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 the market is really worth. active. 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 crypto 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 around the world drastically pushing back what is happening. “
Is bitcoin worth nothing or is it on its way to making 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 a just under $ 1 trillion, which makes 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, which makes the asset more like a collector’s item, like fine art. Others have 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. Right now, Bitcoin’s appeal lies both on flashy marketing and on the FOMO investor – the fear of missing out.
In this way, its value may never have an objective equilibrium point 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 making sure they’re not 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 failure of the payment system At the U.S. Federal Reserve, wire transfers and check clearing services disrupted this week, with many bitcoin supporters arguing on social media that blockchain could prevent the kind of disruption that is plaguing the Fed.
Some critics who claim that bitcoin is too volatile still see the potential for wide use of the blockchain system. Meanwhile, Bitcoin supporters see a drastic change in the global financial system underway, underpinned by all of the cryptocurrency’s functions.
Can you buy anything 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 welcome bitcoin to its platform. And Tesla has also announced that it will soon accept bitcoin as a payment method for its electric vehicles.
In the cryptocurrency world, the old lines are blurry and don’t 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 valued 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 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 various reasons and that more data is needed to determine its environmental impact as a whole, 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. share of the cryptocurrency.
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 those 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 around the world drastically pushing back what is happening.
Getting 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 possible collapse of certain industries or countries.
In turn, payment processors such as PayPal and Square have responded to the request that customers have 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 value.
For those 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 of those Beanie Babies collecting dust in your basement.