Is Bitcoin dead? Why the Bitcoin value drop hurts cryptocurrency
Is this the day that Bitcoin died? A Twitter headline on Medium seems to point to “yes”, emphatically reading: “The Bitcoin dream is dead”. According to the article, Bitcoin was designed to be a currency, to be traded for goods & services, not a speculative investment, so its wild value oscillation defeats its purpose as a solid currency.
Medium also pointed out Bitcoin’s volatility in the stock market, noting its 25% drop in value over the weekend as the latest example. Other economists have characterized Bitcoin’s value as ever-changing & unstable. However, after Bitcoin bounced back this week, as did other forms of cryptocurrency, we’re skeptical.
So does that mean Bitcoin has died? Not necessarily, especially since the digital currency climbed out of its dip earlier this week per MSN. Find out more about the value of Bitcoin, what that could mean for other cryptocurrencies, and what it means for your investments & stock portfolio down below.
Brief history of Bitcoin
Created in 2010, Bitcoin was meant to be a currency like no other. Not tied to a specific country like USD or Pound Sterling, and not even tied to the Gold Standard, the value of Bitcoin was made to be determined by the market.
According to the abstract of the original paper describing Bitcoin’s design, “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
Meaning, in order to pay someone for providing a service, performing labor at a company, or in exchange for goods, there would be no need to go through a bank or another financial institution to determine worth.
Since Bitcoin’s inception, its value has risen tremendously. Per Medium, this “experient in financial deregulation” has increased the value of Bitcoin “more than 10,000,000% since 2010 and jumping 220% last year alone”. According to mid-market exchange rates, the value of one Bitcoin is equal to nearly $40,000 USD.
How it works
According to Bitcoin’s how-to page, anyone can get started using Bitcoin even if they’re not well-versed in the technicals. All you have to do is set up the Bitcoin app on your phone and Bitcoin will give you an address to send to your friends or clients so they can pay you through the app. However, a question arises from how it works.
How is the value of Bitcoin kept secure? How does Bitcoin distinguish between your money & another user? The answer lies in blockchain, a secure form of coding that’s automated by cryptography, a secure branch of mathematics already used by banks to keep their money safe. With Bitcoin, a lot of their cryptography is automated according to their website’s glossary. It’s also where the term “cryptocurrency” comes from.
Bitcoin’s site explained how it protects your assets with this technology in its how-to guide: “The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. It allows Bitcoin wallets to calculate their spendable balance so that new transactions can be verified thereby ensuring they’re actually owned by the spender.”
That said, although CNN detailed that “Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games”, its real draw is the massive wealth investors can generate by trading Bitcoin on the stock market, making its value on the stock market noteworthy. However, with headlines like CNN’s calling Bitcoin’s value a “rollercoaster”, is Bitcoin a good currency to use or a good investment?
Addressing the value of Bitcoin’s resurgence at the beginning of this week, economist Craig Erlam, senior market analyst at Oanda Europe wrote: “We know it’s an extremely volatile instrument — the only difference this time is the absolute numbers are now much larger due to its growth over the last month.”
On the flip side, according to Mike McGlone, Bloomberg Intelligence commodity specialist, Bitcoin’s value is continuing to rise thanks to retail investors’ growing interest in the cryptocurrency. As long as Bitcoin continues to pique the interest of investors & the public, he & other investors stated they believe Bitcoin will keep growing despite some wild dips.
However, some speculators aren’t so sure. Michael Hartnett, the chief investment strategist at Bank of America Securities, claimed that Bitcoin’s fast rise could be “the mother of all bubbles” and like bubbles past (think the housing market in the 2000s), it’s due to burst.
While Medium’s article characterized Bitcoin’s initial purpose as a “form of currency”, other investors argued that it could be the basis of currency in the future. When asked if Bitcoin was “here to say”, BlackRock CIO Rick Rieder answered emphatically: “Yeah, I do, because it’s so much more functional than passing a bar of gold around.”
It’s easy to see how Bitcoin could become the new gold. Bitcoin was designed to only have a limited amount of coins to trade, making it a finite resource. Other sources still see Bitcoin as a form of currency.
Plus, since Bitcoin’s original white paper described the currency as “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”, Bitcoin could theoretically make the value of gold or other government-backed standards obsolete.
Therefore, with Bitcoin seemingly functioning as a new economic standard, a volatile investment in the stock market, and a new currency, predicting its future can be just as wild as its fluctuating investment value. Bitcoin investors should hang onto their hats as Bitcoin rises & dips in value, with some possible drastic bumps along the way.
Do you think Bitcoin will be the way of the future, or do you think Bitcoin’s value bubble is due to burst? Let us know in the comments!