Billionaire Elon Musk invested $ 1.5 billion in bitcoin before tweeting that its value “looks high”. Microsoft founder Bill Gates, himself a centurionaire, recently warned investors against losing their 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 that bitcoin is inefficient to actually conduct transactions and is highly speculative.
However, bitcoin is the hot topic that keeps popping up. But with much of the US technological, financial and political elite skeptical about its usefulness as a medium of exchange and its ability to be a long-term store of value, many are wondering what the asset is really worth. Here’s what you need to know.
Is bitcoin trying to dethrone the dollar?
Bitcoin fans say cryptography is the future and one day a decentralized global financial system will dethrone investment titans, central banks and government treasures. They predict that a currency without borders 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 an aspiration, there is no guarantee that bitcoin can break through current institutional barriers – and take its value “to the moon” – cryptographic language for intergalactic success.
“You can go anywhere,” said Peter Tchir, head of macro strategy at Academy Securities, to Al Jazeera. “But now, I’m a bass player. You will see significant resistance from regulators around the world to control what is happening. “
So, is bitcoin worth nothing or on its way to half a million dollars?
Pessimists claim that bitcoin is literally worth zero, while enthusiasts say that the value of a bitcoin is much higher than the nearly $ 50,000 that the cryptocurrency hovered this week. At the moment, bitcoin’s market capitalization is a bit timid at $ 1 trillion, making it by far the most valuable cryptocurrency.
JPMorgan Chase & Co analysts said the value of bitcoin could rise to nearly $ 150,000 over the next decade, while Galaxy Digital’s Mike Novogratz predicts a $ 500,000 valuation by 2024.
Why does cryptocurrency tend to be a speculative investment?
Some experts argue that the time to invest from people who accumulate bitcoin is a fad, making the asset more like a collector’s object, such as fine art. Others compared it more to a passing trend, a flash-in-the-pan like the tulip craze of the 1630s or the Beanie Babies craze of the 1990s. At the moment, bitcoin’s appeal depends on both flashy marketing and FOMO of the investor – the fear of losing.
That way, their value may never have any objective break-even point, and instead it will always be worth only what buyers are willing to pay. Bitcoin gets value from its perceived scarcity and network effects.
Why is blockchain technology important?
Blockchain allows users to check each other’s transactions for the simple purpose of ensuring that they do not use the same cryptocurrency twice, as if it were a floating check. These point-to-point transactions are pseudonymous, but not entirely anonymous, meaning that everything can be tracked in the public ledger.
After a widespread unavailability of the payment system in the U.S. Federal Reserve interrupted wire transfers and check clearing services this week, many bitcoin supporters argued on social media that blockchain could avoid the kind of disruption that hit the Fed.
Some critics who argue that bitcoin is very volatile still see potential for the blockchain system to be widely used. Meanwhile, bitcoin supporters see a radical change in the global financial system underway, underpinned by all the functions of cryptocurrency.
Can you really buy anything with bitcoin now?
At the moment, acceptance is still limited. Amazon uses the third-party Purse service to receive bitcoin payments for e-commerce products. In 2014, Overstock became the first major online retailer to receive bitcoin on its platform. And Tesla also announced that it would soon accept bitcoin as payment for its electric vehicles.
In the world of cryptocurrencies, the old lines have become confused and do not fully distinguish currencies from bonds and commodities.
“We are moving into a world where the value is inherently fluid,” said Lewis Cohen, a crypto lawyer, at the virtual Bloomberg Crypto Summit on Thursday. “In the past, there was a distinction between money and everything. Now, it is not so clear. “
What about the environmental cost?
The market’s appetite for bitcoin has led some skeptics to double their criticism about the cryptocurrency being harmful to the environment.
Cryptocurrency mining involves complex computer calculations to verify transactions, which requires large amounts of electricity to power computers and also to keep them cool. Bitcoin is estimated to consume more than 127 terawatt hours of electricity per year, according to modeling by the Center for Alternative Finance at the University of Cambridge.
But supporters of bitcoin say the fiat currency system as a whole requires far more electricity to maintain – by adding the energy needs of banks and other institutions whose equipment and employees hold the dominant dollar. Cambridge University researchers recognize that it is impossible to know how much electricity bitcoin uses for a variety of reasons, and more data is needed to determine its overall environmental impact, especially as some bitcoin miners used renewable energy sources to power your operations.
So, should I run out and buy bitcoin?
Increasingly, financial advisors are telling their clients to invest a small fraction of their portfolios in “digital gold” – about two percent, for example – as a way to diversify risk and get a share of the cryptocurrency’s stock. .
Nic Carter, co-founder of Coin Metrics, said the value of bitcoin is based on being “highly transferable and programmable”. Although there is no physical use for it at the moment, it is easy to deliver – it is not like carrying a suitcase full of gold bars to the bank.
Academy Securities Tchir, who calls himself bitcoin agnostic, points out that, of the people who talk about it, “the majority is strongly encouraged. They have … like a stockpile of money on steroids.
You can go anywhere. But now, I’m a bass player. You will see significant resistance from regulators around the world to control what is happening.
Going back to the Fed shutdown, could buying bitcoin be a protection against system failures?
Bitcoin may become more widely adopted as confidence in the financial and political establishment continues to wane. Some people’s growing lack of faith in the conventional economy has led them to invest in cryptocurrencies as a global haven against the possible collapse of certain industries or countries.
In turn, payment processing companies, such as PayPal and Square, responded to customers’ demand for bitcoin, announcing that they will accept it as a form of payment. And investment banks like Fidelity and Goldman Sachs are increasing their own exposure and also making it easier for clients to get on the crypto wave.
“The value of fiat currency is a country’s productive capacity and assets. Bitcoin, as it becomes a monetary instrument, uses the productive capacity of assets and people worldwide, ”said Caitlin Long, CEO of Avanti Bank & Trust, during the Bloomberg Crypto Summit.
Will bitcoin make me rich?
Only time will tell. While the bitcoin bubble may soon be softened by conventional adoption, the future is unpredictable for the world’s dominant cryptocurrency. And its popularity may be proof of an irrational frenzy or a real sign of its increasing international prevalence – and value.
For those who were fortunate enough to buy a bitcoin last March for about $ 5,000, their investment grew about tenfold in the past year. The same cannot be said for those Beanie Babies collecting dust in their basement.