Bitcoin on the rise, but there are uncertainties
THE PRICE of Bitcoin has surged to $60 000 (R872 283). A few factors have contributed to this phenomenal rise in the cryptocurrency’s fortunes.
The accumulation of three stimulus packages from the US have had an unintentionally negative effect on the long-term value of the dollar. In fact, since the Nixon administration took the dollar off the Gold Standard, the currency has been floating by its own virtue. As a result, the value of the dollar remains in a cycle of long-term devaluation. The only real value in the dollar is the US’s ability to service its debt.
As a result of the devaluation, institutional financial investors are moving their investments away from the currency.
Up to now, the US has remained a very wealthy country and has stood by its ability to service its debt. As the dollar devalues, however, so does the worthiness of the currency.
The interesting thing is, in terms of the movement in value from the dollar to alternate currencies such as Bitcoin, where the dollar had immense power before and Bitcoin was worth next to nothing, the dollar is now declining and Bitcoin is legitimately becoming one of the most powerful currencies in the world.
There has been a major shift, which has been brought about by a chain of events. Since its birth in 2009, Bitcoin has gone through several phases. It took time for Bitcoin to be recognised as credible alternative currency. The real turning point was when Bitcoin registered as a currency on the Chicago Mercantile Exchange.
However, the road towards the completely appreciated value of Bitcoin
is still fraught with uncertainties. For example, statements made by US Treasury Secretary Janet Yellen, who says Bitcoin will need to be regulated, has caused investors sitting on the sidelines to become more hesitant to jump in. Once regulatory standards are imposed on the currency, it becomes less organic in form and less volatile.
We are in the Wild, Wild West of cryptocurrencies. Although Bitcoin came about in 2009, this is just the beginning. If one observes how few cryptocurrency transactions are taking place, the upside potential is huge. In truth, we haven’t seen the real magnitude of cryptocurrencies yet.
Consumers have yet to take it on as a currency for daily transactions. But changing mindsets takes time. However, we are seeing major credit card companies, online payment solutions and, notably, Tesla adopting Bitcoin as a recognised payment method.
There are going to be many competitors to Bitcoin. The only thing I could compare it to is the dotcom bubble and bust of 1999-2000. Many companies, such as AOL (America Online), which was acquired for more than $4 billion at the time – seemed like great value, but ended up a bust. That said, soon after, companies such as Amazon.com and Google that had much less at the time, are among the biggest companies in the world today.
With so many competitors to Bitcoin emerging, we may well see it drop as alternatives arise. The more companies that recognise cryptocurrencies, the more powerful it will become as a sector. Competition is good and is the proof that the sector is being accepted. But it is anyone’s guess which cryptocurrency might ultimately emerge as the leader.
Does the market truly appreciate what Bitcoin is worth? The exact evaluation is still up in the air. As more major corporations and mainstream influencers start adopting it transactionally, the word on the street is that it may still rise. Right now, as we look at it, the cat is out of the bag.
The market is grudgingly accepting it as a form of transactional currency. But there is still a lot to figure out. The question is, what threats could regulatory impositions pose for Bitcoin? And what about upcoming competitors? Could they overtake it?
Down the line, we know that cryptocurrency is the way of the future, but we have no idea how the transactional transformation is going to happen.
There are still many questions that we need answers to, such as which cryptocurrency will win the race? How will it be regulated?
Bitcoin is still very volatile. And volatility tends to make people sell.
Consumers would rather have a currency that is stable. There is still much trepidation, particularly when the value of Bitcoin is changing weekly into the $10 000s. But once global consciousness awakens to the value of cryptocurrencies in general, we may see an overnight shift.
The most important thing to remember when you’re trading anything is to make sure that the institution you are trading with is regulated. And with cryptocurrencies, in particular, do your due diligence. Do the research and make sure that your money is in safe hands.
There are many opportunists who are trying to cash in. Watch the markets, understand the trading environment and protect yourself by choosing a regulated broker.