Despite many scoffers and credible risks, Bitcoin is gaining respect among top investors.
Could Bitcoins be something of lasting value? Now that they are widely traded, what are the future prospects for Bitcoin?
The idea that Bitcoins might soon become something as equitable as Gold seems baffling.
But, experts believe that some signs dictate so.
About a few weeks ago, Bitcoin’s spot rate reached as high as $50,000 for a single unit. In contrast, it was merely valued at $10,000 about a year ago.
As Bitcoin is entering the mainstream, it is being accepted as a financial tool with real value.
The Changing Dynamics Of Bitcoin
Although Bitcoin is only one of the many cryptocurrencies, it is still more aggressively traded.
It’s digital, encrypted, and unregulated, like all other cryptocurrencies. The owner keeps a secret code for each currency in their electronic wallet.
And then the magic ingredient – called blockchain – registers the transaction history like a public ledger.
All this requires a lot of energy and computation. But, as John Oliver once said, it’s “everything you don’t understand about money, combined with everything you don’t understand about computers.”
Long before Elon Musk purchased Bitcoins worth $1.5 billion, signs were telling large institutional investors to take a cryptocurrency stake soon.
Consider this, an investments firm in Canada received approval to launch an exchange-traded fund. What’s interesting is the fact that the fund is based on Bitcoin. So, of course, bitcoin in Canada is now being sought by respectable investors to expand their portfolios.
In the US also, regulatory banks are now offering Bitcoin trading to their clients.
So, how does it all connect? How do all these trends point at cryptocurrency having a real value?
If the financial experts are to be believed, especially the younger generation, crypto would become more credible. And not to mention, it would be traded a lot more than it is now.
It might actually be the start of something huge in the financial industry. A UK-based fund manager believes that the cryptocurrency market is still young. But it has a huge potential to revolutionize financial and institutional adoption.
The Lurking Speculative Jokes
Despite the surge in institutional interest, Bitcoins are still a hazy investment.
There are many credible doubters, and a single reason from them is enough to make a funny joke out of thin air.
Deputy Governor Tim Lane, Bank of Canada, expressed, “The recent spike in their prices looks less like a trend and more like a speculative mania.” He also adds that Bitcoins may never become a legal tender for transactions.
Among many flaws that Bitcoin and other digital currencies have, volatility and high-energy usage seems to be the biggest problem.
We already know how volatile the Bitcoin market is and how speculative the trends can be. On top of this uncertainty, mining, computing, sending and receiving Bitcoins take up a lot of energy.
A recent report from BBC mentions, “Bitcoin uses more electricity annually than the whole of Argentina.” Besides, governments have always been skeptical about its use for illicit payments in the black markets.
Quite interestingly, the crypto market is also believed to be a leverage tool for funny businesses. From money laundering to needing financing, cryptocurrency has become an exploitable asset.
In short, crypto needs to be regularized.
The Investor’s Perception
Central banks and governments have been trying to control the crypto market. But, if they are to succeed, they must act quickly.
The reason being, even if Bitcoins don’t turn into Gold, they are certainly progressing. With the involvement of institutional investors, Bitcoin’s increasing popularity is hard to deny.
Consider this. The value of financial goods depends on investors’ perceptions. Now, it could be anything – metals, stocks, bonds, funds, and even currency.
If the investors believe something to be valuable and tradable, they are possibly right in thinking so.
Back in 2013, when Bitcoin was worth $87 only, it still traded the market. But, of course, the price it fetched was what people could sell it at and no more.
In other words, it’s the user perception that would decide if Bitcoin would become something that could last.
Moreover, tradable commodities are usually not dependent on their utility. For example, the value of Gold, which is industrially valuable for many utilitarian purposes, is not decided by how it is used. Instead, its price depends on how much people pay or are willing to pay for it. Of course, the financial aspect is there in the picture, but it has the least say.
Bitcoins and other cryptocurrencies are also similar in this context. However, they are traded at a widely accepted price by the users and not their utilitarian value.
As with any other market commodity, the believers (traders) would invest in Bitcoin when they believe it has fallen below its perceived value. Now, it could be for any reason, from using it as a hedge against inflation or trading it, or as in the case of Elon Musk, using it as a store of value.
Although governments and central banks may not let Bitcoin enter mainstream tenders, there are still bright chances.
Of course, the central agencies being the sole printers of money, wouldn’t want any competition that may threaten their economic value. But, they may still promote its trade, as evident from recent steps taken by some institutions.
Whether or not Bitcoins will replace Gold in its perceived value is still to be witnessed. Thus, the market prospects are a mix of individual perceptions and beliefs.
Besides, traders are still not fully aware of how the crypto world operates and how they may control their holdings.
There is a need to educate users and traders alike. Government institutions can also play a significant role in Bitcoin’s future. For example, tax regulations, asset management, and even trading reins can be implemented to limit its use for funny businesses.
However, there’s one thing for sure – the longer the Bitcoins stay in the market, the longer they’ll keep on growing in value.