Despite minor volatility, the price of Bitcoin has increased considerably in recent months. Bitcoin’s recent price surge has sparked speculation about its future. True crypto enthusiasts see Bitcoin as the currency of the future, while non-believer sees it collapsing at some time. Bitcoin is a topic of several controversies, with different points of view on even the most basic characteristics. For example, Bitcoin was intended to be used as a payment method, but it is increasingly being viewed as a new investment category. The future of Bitcoin is also a matter of conflict; will it completely replace the current system, or will it gradually become “just” another new financial product together with the ones we currently know?
Bitcoin as an asset class
It takes a little effort to see Bitcoin as a regular investment item. People can make money with “regular” currencies like the euro by investing it in a lucrative enterprise. Profit yields a return, and investors can benefit if the amount of money grows following the real economic activity. Bitcoin operates uniquely. Bitcoin’s value has shown to fluctuate significantly, yet it is a closed system. This is due in part to Bitcoin’s deflationary qualities. The amount of Bitcoin available is predefined and, in the end, restricted. As a result, the return on investment (ROI) of Bitcoin is exclusively decided by the price of Bitcoin in the general currency.
Bitcoin investors can only collect their return if another user is willing to spend the same amount in Bitcoin at a higher level, in exchange for ordinary currency, of course. This is likely one of the main reasons why, at the same time that the price of Bitcoin is soaring, speculation about its future potential is prevalent.
Why does Bitcoin have value?
Grain was used as a basis for early money standards, such as in Egypt. For centuries, tobacco was used as a form of currency in Virginia. Metal coins’ intrinsic worth is determined by the metal used to mint them, such as copper, iron, silver, and gold. Massive stones (Rai) were used in one extremely old money standard, whereas Cowry shells were used in the longest-running money standard across a vast geographical area. Gold has little practical purposes other than dental crowns and jewellery, while paper money is worthless the moment no one will accept it.
Fiat money does not have a physical form. The same may be said about Bitcoin. Bitcoin has worth as long as enough people believe in it and are willing to pay conventional money for it. Bitcoin loses its value if people quit faith in it. Other forms of fiduciary money, such as the aforementioned Rai, shells, currency, and fiat money, have this feature.
How high can the value of Bitcoin rise?
Some predict that the value of Bitcoin will soar, possibly reaching a million dollars. But it’s possible also that it won’t because the possibility of Bitcoin’s value plummeting to zero is potentially just as likely. Bitcoin’s worth is solely determined by the value placed on it by its supporters. Hypes, on the other hand, can go a long way. In comparison, the buzz surrounding Bitcoin isn’t as bad, despite having a considerably greater global reach.
Could Bitcoin become a global currency?
Almost everything, including the economy, has been on the downward slide since the pandemic began, except for Bitcoin, which has experienced a meteoric rise. At the beginning of this year, the digital asset succeeded to establish fresh highs. With significant increases and surges, the old debate about bitcoin becoming a global currency and ending the dollar’s dominance appears to have resurfaced. The US dollar, on the other hand, remains as powerful as ever. Despite claims of waning American dominance, the dollar has successfully reigned as the worldwide commerce medium, serving as the yardstick against which other countries’ currencies are measured.
Bitcoin is unlikely to overtake the dollar as the world’s most widely used currency, at least not anytime soon. Bitcoin has many money-like characteristics, and it may be used to make payments and purchase everyday products. All you need is a seller who is willing to accept bitcoin as payment. Because of the excitement surrounding bitcoins, many merchants are prepared to do so. Bitcoin, on the other hand, has something that other commodities don’t: it enables its holders to make transactions discreetly, which might have been a major reason behind its rising popularity.
However, one reason why bitcoin trumping the dollar appears to be speculative at best is that the maximum number of bitcoins that can exist is set at 21 million. However, it is common knowledge that the money supply must expand to satisfy the demands of a developing economy. Because there are only 21 million bitcoins, its chances of becoming the superior currency are slim. Another important reason why bitcoin isn’t a viable substitute for conventional money is that it’s extremely volatile and unpredictable. The value of the dollar, of course, varies.
Drawing comparisons with Bitcoin, the dollar, on the other hand, is a paragon of stability. An investor with assets denominated in dollars will have a good sense of the future value of his or her holdings in a year or more. Simply stated, the dollar is still a stronger and stable store of value. Turning our attention to Bitcoin, it exploded in 2017, growing by almost 350 per cent in terms of cash. Unfortunately, it quickly reversed all of these advances in a few months. So far this year, Bitcoin has been able to set a new trading price record of $40,000 in just a month, in January. However, it plunged to $36,000 in less than a half-hour. Such huge fluctuations demonstrate that Bitcoin is far from becoming a reliable store of wealth.
Many traders and investors may be able to profit handsomely from bitcoin investments. However, price changes do little to help regular people, at least in the short term. Due to the high level of uncertainty involved, it provides no method for people to plan their future as an acceptable currency must. In contrast, even if the dollar is less stable in terms of real goods and services or has a lower value, it still has a stronger track record and, as a result, is a better store of value than Bitcoin, providing it with a monetary advantage.
Perhaps, in the future, Bitcoin will be able to achieve widespread acceptance and a stable real-world value. Perhaps, it will be strong enough to take on the dollar and establish itself as a stand-alone global currency. However, bitcoin remains a risky commodity for the time being, and its replacement as a global currency appears to be a long way off.