A year ago, a single token of Bitcoin (CRYPT: BTC) was valued at about $ 5,800. Today, it is trading at approximately $ 57,600 per currency – an impressive 877.5% increase across the board.
With the cryptocurrency generating incredible gains and potentially driving lasting economic change, three Motley Fool employees evaluate the Bitcoin outlook. Read on to see if they think the leading digital currency is a smart buy at this stage of the game.
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I love a great brand story, but …
Keith Noonan: I have never been particularly optimistic about Bitcoin and I will readily admit that I was completely wrong about its performance last year. Does this mean that I am ready to embark on the hot cryptocurrency? Do not.
It is certainly possible that Bitcoin will continue to offer stellar returns, and everyone who has seen big gains so far should be thrilled and proud of their results. The cryptocurrency performed spectacularly and stands out as one of the best performing assets of all time. That said, I won’t be buying Bitcoin anytime soon because I have a hard time understanding the reason for this.
Is Bitcoin a practical currency or an asset that stores value? Is it a speculative investment that can continue to make massive gains in appreciation? In my experience, bulls’ responses to these questions vary enormously, depending on who you ask, when you ask, and how the question is asked. Bitcoin seems to be everything for everyone, at least among the most radical supporters.
The Bitcoin phenomenon is super interesting and may continue to drive a real paradigm shift in finance. People really believe that and there is value in that. At least for a while
With thousands of other cryptocurrencies already on the market and more coming into the game each day, I just don’t see the comparative value in Bitcoin’s open source blockchain technology, especially when other cryptocurrencies offer faster transaction times and lower processing fees .
Bitcoin is a brand. Right now, it’s a incredibly popular brand, but I am not satisfied with the explanations of why cryptocurrency should or will become more valuable.
Potentially endless competition
James Brumley: This is a question that deserves a clear definition of the word “buy”. If you’re talking about taking advantage of short-term fluctuations in cryptocurrency prices, I’m not a proponent of speculative trading, but it is certainly possible. If, instead, you are talking about taking a long-term stake in bitcoin as you would a blue chip or commodity stock, this is a difficult “no” due to a glaring risk: there is no limit to their supply, destroying the whole supply-versus-demand thing needed to create price stability.
Yes, the number of bitcoins that can be extracted is finite. Bitcoin is not the only cryptography that exists, however. Dogecoin (CRYPT: DOGE), Ethereum (CRYPT: ETH), Litecoin (CRYPT: LTC), and Cardano (CRYPT: ADA) there are others that came after Bitcoin, and many more are sure to come.
It matters.
You see, money (fiat currency issued and administered by a central bank) works because its supply is controlled with economic stability in mind. You can exchange it for foreign currency, but currency exchange only exchanges money. It does not create it. It is not so with cryptocurrency. Bitcoin’s high value is based on the fact that it is the world’s preferred cryptography. If it gets too expensive or too unpredictable, buyers and sellers can choose to switch to a newer – and cheaper – cryptocurrency and then another and then another.
The bubble has not yet burst, but I fear that a bunch of Bitcoin owners who buy a premise will end up suffering when the world collectively realizes that the potential number of competing cryptocurrencies is infinite.
Governments will not tolerate this
David Butler: Obviously, it would be a fallacy to say that you cannot make money from cryptocurrencies. You may! I have a very, VERY small position in Grayscale Bitcoin background (OTC: GBTC), but this is more like gambling than investing. There is an inherently high level of risk involved, as noted above. All in all, the biggest thing I think investors and traders need to keep in mind is that the further this goes, the more governments around the world will feel compelled to act.
Anyone who truly believes that these Internet-controlled cryptocurrencies, like Bitcoin, will become a comparable and usable alternative to the U.S. dollar, is being a bit naive. Things like cryptography may well serve as artificial protection against inflation and a relatively useless digital commodity, and it seems that some technology companies will try to allow it to be used for transactions. But at the end of the day, no government will allow its currency to take a back seat to something completely speculative like Bitcoin. If things get out of hand, you’ll see government regulation. If that happens, there is the potential to witness the collapse of something like the value of Bitcoin in terms of U.S. dollars.
If companies start to allow cryptocurrencies to be used to make transactions, I think this will be the catalyst that will ultimately cause government action. The ability to convert money into encryption and then conduct transactions creates a number of national security issues. It also creates a potential avenue to withdraw money from the country, converting it into something other than a traceable government currency.
As soon as you start to see these things, and I think we will do that in the near future, cryptocurrencies will begin to be seriously examined by the government.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and wealthier.