The poster child of cryptocurrencies has reported incredible price fluctuations over the past few months. These dizzying movements were registered around September when Bitcoin was able to make it out of the bear market that it has been subjected to since the explosion of the recent 2018 bubble. Ever since, the world’s most popular cryptocurrency has been on an absolute tear, registering gains that would make many of the country’s highest-paid fund managers blush.
The value of Bitcoin has been on a rollercoaster ride since the beginning of the year, surging to meteoric highs and then plummeting to dramatic lows. The fluctuations in prices continued, allowing Bitcoin to hit an all-time high of about $58,000 per unit last month. Since then, the price has somewhat stabilized staying between the range of $50,000 to $55,000.
However, such growth has intrigued both optimistic spectators and skeptics alike, raising voices in areas of traditional finance as well as the crypto sphere. Believers and supporters are eagerly watching as the scenes play out while cynics and doubters on the other end are declaring it a dangerous bubble. Both sides are making significant noise, however, which one is correct? To solve this equation, here’s a case covering the narrative of both sides.
In Favour
Bitcoin has seen a growth of about 700% since the beginning of 2020.
Michael Hartnett, who is a chief strategist at the Bank of America, warned that the entire crypto market may just be the mother of all bubbles. According to him, the increase in Bitcoin is even bigger and faster than the most famous bubbles such as that of housing prices before 2008. Many financial analysts are reminding investors that such a sharp surge in price is a characteristic of bubbles where the prices come back down even faster than they climbed.
Against
One of the major issues with calling Bitcoin a bubble is the cynical nature of the cryptocurrency’s price. Generally, a traditional bubble pops and then disappears instead of continuing to bubble. And for a bubble to exist, an asset will have to be trading for vastly greater than the value of the asset underneath. However, determining the value of Bitcoin can be quite difficult.
Normally, currencies are said to carry value if they can be used as a store of value. This essentially means that if you can, if you can trust your money to hold value against real-world assets such as gold, then that particular currency has value.
Bitcoin, however, isn’t backed by any real-world assets but most currencies aren’t backed either. Hence, we will instead need to look at the qualities that essentially make a currency value and compare it with Bitcoin to see if it fits the bill and actually holds any intrinsic value.
What Is Bitcoin Worth?
One of the most essential determinants is scarcity. Fortunately, Bitcoin simply outclasses the competition in this department. Since its inception in 2009, a limit has been set for the number of Bitcoins that can ever be mined. The limit is capped at 21 Million. This was a conscious decision about Bitcoin’s design made by Satoshi Nakamoto, the anonymous creator of the cryptocurrency. Such a limit allows Bitcoin to retain its value regardless of the economic environment.
In addition to that, an asset should also be a good medium of exchange and this is another domain that this Bitcoin excels at. Furthermore, this digital currency needs to have utility to be worth something. While only a few accepted Bitcoin as a means of payment during its early years, many key players have jumped aboard the crypto bandwagon since then. These include Tesla, PayPal, and Square, just to name a few, that have allowed and aid in Bitcoin transactions. These have also been the cause for rising popularity along with the availability of trading platforms, such as bitcoin power software, that have made trading and investing in Bitcoin much easier and profitable.
The Bottom Line:
The answer to whether Bitcoin is a bubble or not lies in how much Bitcoin is actually worth i.e its intrinsic value. This is dependent on a number of characteristics and Bitcoin seems to tick all the right boxes.
Nevertheless, the meteoric increase in its price over the past few weeks is unsustainable and in the short term, the digital currency will surely see some setbacks. On a very short scale, it could even be said that it is in a bubble. However, zooming out, the picture may be a lot different.
It can be safely said that Bitcoin is still in the early years of its life. However, it is certain that if it continues to gather new users and investors at the current rate it will easily surpass its competitors in the financial sector. As a result, this will certainly lead to an upward trend in its price.
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