Billionaire Elon Musk tossed $ 1.5 billion in bitcoins before tweeting that its value “looks high.” Microsoft founder Bill Gates, a billionaire himself, recently warned investors not to lose their T-shirts with a risky cryptocurrency, and told Bloomberg News that it is not bullish on Bitcoin, in part for environmental reasons. And U.S. Treasury Secretary Janet Yellen said bitcoin is inefficient for actually conducting transactions and is highly speculative.
Still, Bitcoin is the hot topic that keeps popping up. But with much of the U.S. technological, financial, and political elite skeptical about its usefulness as a medium of exchange and its ability to be a long-term value deposit, many wonder what it’s really worth the asset. This is what you need to know.
Is bitcoin trying to dethrone the dollar?
Bitcoin fans say cryptocurrency 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 aspirational, there is no guarantee that Bitcoin can break current institutional barriers – and drive its value “to the moon” – the cryptographic language for intergalactic success.
“I could go anywhere,” Peter Tchir, head of macrostrategy at Academy Securities, told Al Jazeera. “But right now I’m a bass player. You will see a major setback by regulators around the world to correct what is happening. “
So is bitcoin worthless or is it worth half a million dollars?
Naysayers claim that bitcoin is literally worth it, while enthusiasts say the value of a bitcoin is well above the approximately $ 50,000 the cryptocurrency has hovered around this week. Currently, Bitcoin’s market capitalization is a bit shy of $ 1 trillion, making it the most valuable cryptocurrency.
JPMorgan Chase & Co analysts have said the value of Bitcoin could rise to nearly $ 150,000 over the next decade, while Mike Digital’s Mike Novogratz has forecast a valuation of $ 500,000 in 2024.
Why is cryptocurrency often such a speculative investment?
Some experts argue that the investment driven by people stacking up in Bitcoin is a fad, making the asset more like a collectible, such as the fine arts. Others have compared it more to a fleeting trend, a flash-in-the-pan like the tulip craze of the 1630s or the Beanie Babies fashion of the nineties. Right now, the appeal of Bitcoin is based on both flashy marketing and a FOMO investor, the fear of getting lost.
That way, your value may never have an objective break-even point and it will always be worth what buyers are willing to pay. Bitcoin gets value for its scarcity and perceived network effects.
Why is blockchain technology important?
Blockchain allows users to verify the transactions of others for the simple purpose of making sure they don’t use the same cryptocurrency twice, as if it were a floating check. These peer-to-peer transactions are pseudonymous but not entirely anonymous, which means everything can be traced in the ledger.
After an extensive disruption to the U.S. Federal Reserve’s payment system that disrupted bank transfers and check clearing services this week, many bitcoin followers argued on social media that the blockchain could avoid the rate of interruptions affecting the Fed.
Some critics who argue that bitcoin is too volatile still see the potential for the blockchain system to be widely used. Meanwhile, Bitcoin supporters are seeing a maritime change in the global financial system that is based on all the functions of cryptocurrency.
Can you actually buy something with Bitcoin right now?
At the moment, acceptance is still limited. Amazon uses the third-party Purse service to make payments with bitcoins 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, old lines have faded and do not completely distinguish currencies from stocks and commodities.
“We’re moving into a world where value is inherently fluid,” Lewis Cohen, a cryptographic lawyer, said Thursday at the Bloomberg Crypto Summit virtual summit. “In the past, there was a distinction between money and everything else. Now, it’s not so clear. “
What about the environmental cost?
The appetite of the market for bitcoin has caused some skeptics to double their criticism that the cryptocurrency is not environmentally friendly.
Cryptocurrency mining involves complex computer calculations to verify transactions, which require large amounts of electricity to power computers and keep them cool. It is estimated that Bitcoin will use more than 127 terawatts-hours of electricity a year, according to the model of the Center for Alternative Finance at Cambridge University.
But proponents of bitcoin say the fiduciary currency system as a whole requires much more electricity to maintain, when it comes to adding up the energy needs of banks and other institutions teams and employees keep the dollar dominant. Researchers at Cambridge University recognize that it is impossible to know how much electricity bitcoin uses for various reasons and more data is needed to determine its overall environmental impact, especially because some bitcoin miners use renewable energy sources to power their operations.
So should I run out of 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 action.
Nic Carter, co-founder of Coin Metrics, said the value of Bitcoin is based on being “highly transferable and programmable.” While there is no physical use at this time, it can be easily delivered, not like carrying a suitcase full of gold bars in your bank.
Tchir of Academy Securities, who calls himself an agnostic Bitcoin, notes that of the people who speak, “most are strongly encouraged. They own it … like a penny of steroids. ”
I could go anywhere. But right now I’m a bassist. You will see a major setback by regulators around the world to correct what is happening.
Going back to this Fed disruption, could buying Bitcoin be a protection against system failure?
Bitcoin could be adopted more as confidence in the financial and political establishment continues to erode. The growing lack of confidence of people in the conventional economy has led them to invest in cryptocurrency as a global refuge against the possible collapse of certain industries or countries.
In turn, payment processing companies such as PayPal and Square have responded to the demand that customers have for bitcoin by announcing that they will accept it as a payment. And investment banks like Fidelity and Goldman Sachs are adding to their own exposure and also making it easier for clients to make the leap to cryptography.
“The value of the fiat currency is the productive capacity and assets of a country. Bitcoin, as it becomes a monetary instrument, builds on the productive capacity of assets and people around the world, ”Caitlin Long, CEO of Avanti Bank & Trust, told the Bloomberg Crypto Summit .
Will bitcoin enrich me?
Only time will tell. While 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 lucky enough to buy a bitcoin last March at about $ 5,000, their investment has multiplied tenfold in the past year. The same cannot be said for those babies who collect dust in the basement.