Billionaire Elon Musk threw $ 1.5 billion into bitcoin before tweeting that its value “appears high.” Microsoft founder Bill Gates, himself a centibillionaire, recently warned investors about losing their risky cryptocurrency shirts, telling Bloomberg News he is not optimistic about bitcoin, in part for environmental reasons. And US Treasury Secretary Janet Yellen said bitcoin is inefficient for actually executing transactions and is highly speculative.
Yet bitcoin is the hot topic that keeps popping up. But with so many of the US’s technological, financial, and political elite skeptical of its usefulness as a medium of exchange and its ability to store long-term value, many are wondering what the property is really worth. Here’s What You Should Know.
Bitcoin is 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 because all of that is still ambitious, there is no guarantee that bitcoin can break current institutional barriers – and push its value “to the moon” – crypto language for intergalactic success.
“It could get anywhere,” Peter Tchir, Academy Securities’ chief macro strategy, told Al Jazeera. ‘But right now I’m bearish. You will see regulators around the world getting a significant backlash to see what is going on. “
So is bitcoin worth nothing or on the way to half a million dollars?
Naysayers claim that bitcoin is worth literally zero, while enthusiasts say the value of one bitcoin is much higher than the roughly $ 50,000 the cryptocurrency hung this week. Right now, bitcoin’s market cap is a bit shy of $ 1 trillion, making it the most valuable cryptocurrency by far.
Analysts at JPMorgan Chase & Co have said bitcoin’s value could rise to nearly $ 150,000 in the next decade, while Galaxy Digital’s Mike Novogratz predicted a valuation of $ 500,000 by 2024.
Why is cryptocurrency usually such a speculative investment?
Some experts argue that the momentum invested by people piling on bitcoin is a fad, making possession 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 relies on both flashy marketing and investor FOMO – the fear of missing out.
In this way, its value can never have an objective equilibrium point, and instead will always be worth just what buyers are willing to pay. Bitcoin derives value from its perceived scarcity and network effects.
Why is blockchain technology important?
Blockchain allows users to verify each other’s transactions for the simple purpose of ensuring that they don’t use the same cryptocurrency twice, like a check. These peer-to-peer transactions are pseudonymous but not completely anonymous, meaning that everything can be traced in the general ledger.
After a widespread payment system outage at the U.S. Federal Reserve this week disrupted bank transfers and check-clearing services, many bitcoin supporters on social media argued that blockchain could prevent the kind of disruptions the Fed hit.
Some critics who argue that bitcoin is too volatile still see potential for the blockchain system to be widely used. Meanwhile, bitcoin’s supporters are seeing a global change in the financial system supported by all the features of cryptocurrency.
Can you really buy something with bitcoin?
At the moment, acceptance is still limited. Amazon uses third-party purse to accept bitcoin payments for ecommerce products. In 2014, Overstock became the first major online retailer to welcome bitcoin to its platform. And Tesla also announced that it would soon be accepting bitcoin as payment for its electric vehicles.
In the cryptocurrency world, the old lines have become blurred and a full distinction is not made between currencies and securities and commodities.
“We are moving into a world where value is inherently fluid,” Lewis Cohen, a crypto attorney, said at the Bloomberg virtual Crypto Summit Thursday. “In the past there was a distinction between money and everything else. Now it is not so clear. “
What about the environmental costs?
The market’s appetite for bitcoin has prompted some doubters to redouble their criticism of cryptocurrency being environmentally unfriendly.
Cryptocurrency mining involves complex computer calculations to verify transactions, requiring massive amounts of electricity to power the computers and keep them cool. According to a model from the Center for Alternative Finance at the University of Cambridge, Bitcoin is estimated to consume more than 127 terawatt hours of electricity per year.
But bitcoin defenders say the fiat currency system as a whole needs a lot more electricity to maintain – when adding up the power needs of banks and other institutions whose equipment and employees keep the dollar dominant. 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 the environmental impact as a whole, especially as some bitcoin miners used renewable energy sources to power their operations. to provide.
So should I run out and buy bitcoin?
Financial advisers are increasingly telling their clients to invest a small portion of their wallets in “digital gold” – for example, about two percent – as a way to diversify risk and get a slice of the cryptocurrency action.
Nic Carter, Co-Founder of Coin Metrics, said bitcoin’s value is based on the fact that it is “highly transferable and programmable.” Despite having no physical use at this point, it is easy to deliver – not like dragging a suitcase full of gold bars to your bank.
Tchir of Academy Securities, who calls himself bitcoin agnostic, points out that of the people who talk about it, “most are heavily stimulated. They own it … like a penny worth of steroids. “
It can go anywhere. But right now I am bearish. You will see significant backlash from regulators around the world to correct what’s going on.
Coming back to that Fed outage, could buying bitcoin be a hedge against system failure?
Bitcoin could be adopted more widely as confidence in the financial and political establishment continues to wane. Some people’s increasing lack of confidence in the conventional economy has prompted them to invest in cryptocurrency as a global haven from the potential collapse of certain industries or countries.
In turn, payment processing companies 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 increasing their own exposure and also making it easier for clients to jump on the crypto cart.
“The value of fiat currency is the production capacity and assets in a country. Bitcoin, as far as it becomes a money instrument, draws on the productive capacity of the assets and people around the world, ”Caitlin Long, the CEO of Avanti Bank & Trust, told the Bloomberg Crypto Summit.
Is Bitcoin going to make me rich?
Time will tell. While bitcoin’s bubble may soon be smoothed out 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 a bitcoin worth about $ 5,000 last March, their investment has increased about tenfold in the past year. The same cannot be said for those Beanie Babies who collect dust in your basement.