Bitcoin: Digital gold or just a bubble?

Ever since the beginning of 2021, Bitcoin investors have been on a wild ride as the cryptocurrency has been in a state of constant flux. The value of Bitcoin almost quadrupled towards the end of 2020- a surge reminiscent of the currency’s heyday in 2017 when its value surged to an all-time high of nearly $20,000 only to crash and burn a few months later, losing more than two-thirds of its value.

Bitcoin, the most popular cryptocurrency, which was once viewed as a turf of nerds, libertarians, and criminals, has now been successful in gaining significant traction and interest from intrigued investors and even skeptics.

This piqued investor interest allowed the price of Bitcoin to skyrocket hitting $41,000 per unit that was then followed by dizzying gyrations in value. This latest bout of volatility comes as many renowned investors are speculating not only the cryptocurrency’s potential but future prospects as well- is it just a bubble or could it go on to shake up the financial world and potentially take over the role of gold?

Bitcoin and Gold

Gold, as a scarce resource, has traditionally been used by people as a hedge against inflation. In the case of fiat currencies, governments can always print more money and thereby, debase their currencies. However, since there is only a limited resource of gold, miners can’t flood the markets with gold whenever required.

Similar to gold, bitcoin has been designed to only have a limited amount in existence, capped at 21 Million. This was a very conscious decision made by Satoshi Nakamoto, the original entity responsible for the creation of Bitcoin, allowing it to retain its value. Since the cryptocurrency’s supply is even more limited than gold, it makes it essentially inflation-proof, allowing it to rise in value even during the current economic downturn as a result of the ongoing pandemic.

Another part of Bitcoin’s appeal lies in the fact that it is completely decentralized, not accountable to, or controlled by third parties such as banks or governments. With vast spending by governments and banks due to the pandemic, the fears of an increase in inflation are on the rise. Such circumstances have intrigued the debate of Bitcoin being “digital gold” and its importance in the times to come.

Analysts at JPMorgan have expressed that if bitcoin is successful in attracting the same amount of money that is now invested in gold, it could rise to a theoretical price of over $146,000.

Just another bubble?

Each surge in price energizes Bitcoin’s true supporters and attracts big attention like when the total market value of a myriad of cryptocurrencies topped $1 trillion on January 7th for the first time.

Financial technology startups such as Robinhood have created apps that portray cryptocurrency as a key part of trading.

However, investing in Bitcoin, or any other crypto for that matter, remains a risky and highly volatile prospect. This is because the digital assets remain unregulated that are subject to the whims of a fickle market. Despite that, Bitcoin’s rise in 2021 has been swift and there are many key drivers behind it. Its nature, decentralized, inflation-proof, and extremely volatile makes it an attractive investment opportunity for potential investors. Especially since the increase in trading programs like Immediate Bitcoin, which have powerful algorithms in place to allow users to profit from short-term crypto booms. Another prime factor is the influence and speculation of institutional investors.

Prominent hedge fund managers such as Mike Novogratz and Alan Howard are the few of the big names that have invested millions of dollars in bitcoin and other crypto coins. A survey conducted in 2020 revealed that 36% of institutional respondents had incorporated some form of cryptocurrency in their investment portfolios. Also, under the same survey, more than six out of ten expressed interest in Bitcoin.

Regardless, bitcoin is still considered to be a thinly traded market, where whales (controlling large quantities of a specific coin) hold huge sway. It is said that less than 2% of anonymous accounts that can actually be tracked through the coin’s digital ledger control about 95% of the current supply.

In circumstances of a whale’s exit, an event that could very likely happen would potentially send ripples throughout the entirety of the crypto space.

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Monio
Monio
3 months ago

A very big threat to our banks!

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