Billionaire Elon Musk invested $ 1.5 billion in bitcoin before tweeting that its value “looks high.” Microsoft founder Bill Gates, who is also a billionaire, recently warned investors not to lose their cryptocurrency t-shirts, telling Bloomberg News that he is not bullish on bitcoin, partly for environmental reasons. And the Secretary of the Treasury of the United States, Janet Yellen, said that bitcoin is inefficient to transact and is highly speculative.
However, bitcoin is the hot topic that keeps popping up. But with so many American technology, 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 how much the asset is really worth. This is what you need to know.
Is Bitcoin trying to dethrone the dollar?
Bitcoin fans say that cryptocurrencies are the future and that one day a decentralized global financial system will dethrone the investment titans, central banks, and government treasuries. They predict that a borderless currency that doesn’t depend on any of the old institutions will be the only way to do business.
But because all of that remains an aspiration, there is no guarantee that bitcoin can break through current institutional barriers and take its value “to the moon” – the crypto language for intergalactic success.
“It could go anywhere,” Peter Tchir, head of macro strategy at Academy Securities, told Al Jazeera. But right now, I’m a bass player. You will see a significant pushback from regulators around the world to corner what is happening. “
So is Bitcoin worth nothing or is it on its way to half a million dollars?
Detractors claim that bitcoin is literally worth nothing, while enthusiasts say the value of a bitcoin is much higher than the roughly $ 50,000 the cryptocurrency has reached this week. Currently, bitcoin’s market capitalization is just under $ 1 trillion, making it the most valuable cryptocurrency by far.
Analysts at JPMorgan Chase & Co have said that bitcoin’s value could rise to nearly $ 150,000 over the next decade, while Galaxy Digital’s Mike Novogratz has forecast a valuation of $ 500,000 by 2024.
Why do cryptocurrencies tend to be such a speculative investment?
Some experts argue that the investment drive from people piling on bitcoin is a passing fad, making the asset look more like a collectible, such as 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, the lure of bitcoin it is based on both flashy marketing and investor FOMO – the fear of missing something.
In this way, its value may never have a target breakeven point and instead will always be worth 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 making sure they don’t use the same cryptocurrency twice, sort of like a floating check. These peer-to-peer transactions are pseudonymous but not completely anonymous, meaning that everything can be tracked on the public ledger.
After a widespread payment system disruption at the US Federal Reserve disrupted wire transfers and check clearing services this week, many bitcoin supporters argued on social media that blockchain could prevent the kind of disruptions. that affect the Fed.
Some critics who argue that bitcoin is too volatile still see potential for the blockchain system to be widely used. Meanwhile, bitcoin supporters see a sea change in the global financial system underway that is underpinned by all cryptocurrency functions.
Can you buy something with bitcoin right now?
At the moment, acceptance is still limited. Amazon uses the third-party service Purse 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 also announced that it would soon accept bitcoin as payment for its electric vehicles.
In the world of cryptocurrencies, the old lines have blurred and do not fully distinguish currencies from stocks and commodities.
“We are moving into a world where value is inherently fluid,” said Lewis Cohen, a crypto attorney, at the Bloomberg virtual Crypto Summit on Thursday. “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 led some skeptics to double down on their criticism that the cryptocurrency is not environmentally friendly.
Cryptocurrency mining involves complex computer calculations to verify transactions, requiring huge amounts of electricity to power computers and keep them cool. Bitcoin is estimated to use more than 127 terawatt-hours of electricity per year, modeled on the Center for Alternative Finance at the University of Cambridge.
But bitcoin advocates say that the fiat currency system as a whole requires much more electricity to sustain, adding in the power needs of banks and other institutions whose teams and employees hold the dominant dollar. Researchers at the University of Cambridge acknowledge that it is impossible to know how much electricity bitcoin uses for a variety of reasons, and more data is needed to determine its environmental impact as a whole, especially since some bitcoin miners used renewable energy sources to power their operations.
So should you rush out and buy bitcoins?
Increasingly, financial advisers 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 piece of the stock from the cryptocurrency.
Nic Carter, co-founder of Coin Metrics, said that bitcoin’s value is based on its being “highly transferable and programmable.” Even though it has no physical use at the moment, it can be easily delivered, not like carrying a suitcase full of gold bars to your bank.
Tchir of Academy Securities, who calls himself bitcoin agnostic, notes that of the people who speak up, “most are highly incentivized. They own it … like a penny on steroids. “
It could go anywhere. But right now, I’m a bass player. You will see significant pushback from regulators around the world to corner what is happening.
Going back to that Fed disruption, could buying bitcoins be a hedge against system failures?
Bitcoin could be more widely adopted as trust in the political and financial establishment continues to erode. Some people’s growing lack of faith in mainstream economics has led them to invest in cryptocurrencies as a global refuge against the possible collapse of certain industries or countries.
In turn, payment processing companies like PayPal and Square have responded to the demand for bitcoin customers 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 easy for clients to jump on the cryptocurrency train.
“The value of fiat currency is the productive capacity and assets of a country. Bitcoin, to the extent that it becomes a monetary instrument, is based on the productive capacity of assets and people around the world, ”said Caitlin Long, CEO of Avanti Bank & Trust, at the Bloomberg Crypto Summit.
Will Bitcoin Make Me Rich?
Only time will tell. Although the bitcoin bubble will soon soften with widespread adoption, the future is unpredictable for the world’s dominant cryptocurrency. And its popularity could be proof of an irrational frenzy, or a real sign of its growing international prevalence and value.
For those who were lucky enough to buy a bitcoin last March at around $ 5,000, their investment has increased tenfold over the past year. The same can’t be said for those Beanie Babies gathering dust in your basement.