Bitcoin: A good investment or A bubble waiting to burst?

Is Bitcoin a bubble?


  • Total voters
    17

Villager

Regular Member
Joined
Dec 1, 2016
Messages
782
Likes
816
Country flag

Disciples of the cryptocurrency plan to hold on for dear life but traditional finance is getting twitchy

Bitcoin is the fastest-growing asset in the world this year, but the virtual currency does not appear to have many users in London’s tech district. It has been more than a month since bitcoin was used to buy a flat white or craft beer sold at the Old Shoreditch Station, according to the hospitality manager at the east London bar.


Q&A
What is bitcoin and is it a bad investment?
Bitcoin is the first, and the biggest, "cryptocurrency" – a decentralised tradable digital asset. Whether it's a bad investment is the big question . Bitcoin can only be used as a medium of exchange and in practice has been far more important for the dark economy than it has for most legitimate uses. The lack of any central authority makes bitcoin remarkably resilient to censorship, corruption – or regulation. That means it has attracted a range of backers, from libertarian monetarists who enjoy the idea of a currency with no inflation and no central bank, to drug dealers who like the fact that it's hard (but not impossible) to trace a bitcoin transaction back to a physical person.


Louis Chauvin admits he cannot find the iPad that is used by staff for processing bitcoin payments, as he resumes serving customers queueing to pay with their contactless bank cards. Although the establishment sits in the capital’s buzzing tech hub, and is advertised online as one of the few retailers in London accepting the hipster-cum-computer nerds’ currency, as few as 20 people have asked to pay with it in the two years he has worked there.

Over the same period, the value of a single bitcoin has rocketed from around $300 to more than $11,000 this week. On Friday, the currency was trading at $10,700.

Chauvin says bitcoin’s increasing value – and media coverage – has not escaped customers. More people have come in asking how it works, thinking of using it in their own shop, rather than actually paying with it, he says, adding: “It’s cool, it attracts some people. But for now it’s niche.


A bitcoin machine at a cafe near Old Street, London. Photograph: Martin Godwin for the Guardian

Bitcoin is a digital currency, also known as a cryptocurrency, that emerged after the financial crisis and is not underpinned by a central bank. It allows people to bypass banks and traditional payment methods for goods and services an idea that has evidently caught the imagination of some investors, because its price has surged by more than 900% in 2017. Bitcoin – created by “miners” who use high-powered computers to solve complex mathematical problems – must be stored online using a digital wallet, and can be bought or sold using exchanges such as Bitstamp, Bithumb and Kraken.

But as bitcoin hits the stratosphere, there are fears an economic bubble is forming as it becomes treated less like a currency and more like a store of value, open for speculators making ever increasing bets on how far it can rise. Central bankers, who had to step in when the subprime mortgage bubble burst, have also warned of its dangers.

Economists have compared bitcoin’s meteoric rise with past bubbles, such as the tulip mania of the 17th century and the dotcom bubble that began in the late 90s with the Nasdaq index in New York and burst in 2000. Both examples foreshadow a painful collapse for a currency that has no intrinsic value to those who hold it beyond that ascribed to it by a community of owners. Should they realise the emperor has no clothes en masse, there could be a rude awakening.

Oliver White at Fathom Financial Consulting wrote that bitcoin “certainly fits the criterion” for a bubble asset. Using data stretching back to 2013, Fathom’s economists compared the price of bitcoin with its historical average and plotted that against other mainstream assets - such as shares and bonds. They found the current value of bitcoin running at six times its average price since 2013. The cryptocurrency has yo-yoed with extreme volatility over the period – over the past week, the price has leapt to as high as $11,379 and plunged to $9,146 before rebounding to $10,700.

Bitcoin disciples argue its price will rise further, viewing volatility as a necessary bump on the path to even higher valuations. Fans even coined a term to describe their tactic of holding on for dear life – Hodl. A deliberate mistyped neologism - up there with noob, to mean newbie – adding to the pantheon of computer slang.

There are some rational reasons to keep calm and carrying on hodling. Serious investors are just getting interested in a market that has so far been dominated by crypto nerds and retail investors. The Chicago Mercantile Exchange (CME) is introducing bitcoin derivatives – a form of bet on the future value of the currency – which will let hedge funds into the market before Christmas.

Commentators also point out that tech stocks in the dotcom crash were worth $2.9tn before collapsing in 2000, whereas the market cap of bitcoin currently stands at $170bn, which could signal there is more room for the bubble to grow. The libertarian dream of bitcoin’s creators is of a currency existing outside the traditional world of finance. But the bigger bitcoin grows and the more conventional institutions such as the CME get involved, the more chance there is of investors losing money and for regulators to intervene.

Pedestrians pass a bitcoin currency poster in Tokyo. Photograph: Franck Robichon/EPA

Global financial leaders such as JPMorgan boss Jamie Dimon and Goldman Sachs’s Lloyd Blankfein have warned that the currency is ripe for use by fraudsters.

Ajit Tripathi of accountancy firm PwC says bitcoin’s meteoric rise and its creation myth have attracted more buyers. The currency is said to have been created by a mysterious figure called Satoshi Nakamoto, although there is no proof this is actually a real person. The absence of any government or bank standing behind the currency also fuels its appeal to those unhappy with the financial system after the credit crunch.

Bubbles are driven by sentiment and stories, and bitcoin has a great story with a lot of mystery and spectacle to it,” Tripathi says. “Is bitcoin at $40,000 by the middle of next year unthinkable? It’s notbut is there a logical and rational explanation for why it should be? I don’t think so.”


Bitcoin machine at a cafe near Old Street roundabout. Photograph: Martin Godwin for the Guardian

Back in east London at the Old Street roundabout, known as “Silicon Roundabout” for its proximity to so many tech startups, Ben Page-Phillips says he fears a collapse in bitcoin’s value. He also accepts the currency at the independent cafe he runs with his brother, Nincomsoup, which they first opened together just before the dotcom crash 18 years ago.

The restaurant is not exposed to a bitcoin bubble because customers pay via an app that takes on the risk by instantly converting bitcoin payments into pounds on behalf of the shop. But he likes the lower cost it brings to processing sales, unlike the “crazy fees” charged by credit card companies.

“I love that it’s outside the banking system, but I have concerns,” he says. “You see everyone piling in and the concern is that it’s going to be artificially inflated. I would treat it like a game – it’s shot up so much, and what goes up must come down.”

https://www.theguardian.com/busines...-bubble-waiting-to-burst-or-a-good-investment
 

Villager

Regular Member
Joined
Dec 1, 2016
Messages
782
Likes
816
Country flag
How is the price of cryptocurrency defined?



Introduction
Cryptocurrency is a new revolutionary type of currency. Like any other currency or unit of account, they only have value because people think it has value. Some currencies are backed by gold or other precious metals; others are backed by nothing but hot air although have value because people think it has value and use it as a unit of exchange.

Cryptocurrencies were designed as a unit of exchange and as a place to store assets without relying on a central bank.This article will discuss the price of Cryptocurrency in general and what affects the price, it is not limited to Bitcoin but this will cover all cryptocurrency.

What defines the price of a cryptocurrency?


The following features are the main driver of cryptocurrency price, but not limited to these.

  • Limited Supply and supply/demand.
  • Energy put in in the form of electricity to secure the blockchain.
  • Blockchain difficulty level.
  • The utility of the currency, and how easy it is to use and store.
  • Perceptions on its value by the public.
  • Price of Bitcoin.
  • Media.
  • Investors.
  • Scams.
  • Market dilution.
  • Innovation.
  • Confidence in traditional systems.
  • Legal/Governmental issues.
Supply/Demand

Precious metals gain their value/perceived value due to their utility and limited supply, and price is often tied to supply/demand. Supply/Demand is a simple economic factor that affects the price of many things. In some countries Bitcoin and other cryptocurrencies is classed as an asset, in others as a currency.

Bitcoin, for example has a maximum of 21 million whole units, divisible 100 million times. With over 7 billion people on the planet, if even 1 billion were to adopt Bitcoin, 21 million whole units would not spread very far without a significant price tag.

The supply is also bought in at a constant rate and is unchangeable due to the coconscious rules. This creates a supply that is limited, and thus people will pay more to get the coins they think have value.

Block reward halving’s, like the Bitcoin halving of 2016 caused the price to slowly increase as the halving approached, due to the reduced supply of new incoming coins imminent. This can affect the price of many cryptocurrencies, but in the case of Litecoin, did not even make a major dent in the price.

Energy Usage
The energy put into securing blockchains can be intensive. In the case of proof of work(POW) blockchains which are the most popular form, electricity usage can be intense. In the case of Bitcoin, the blockchain uses as much energy securing it at present as a small country uses. This has a factor on the price, as it takes a certain amount of energy on average to ‘mine’ one Bitcoin. This goes up with difficulty increases.

Difficulty Level

The more secure the blockchain and the higher the mining difficulty, the higher the perceived value and price and the harder the coins are to get through mining. This can have an impact on price and ties in with the energy usage above, in the case of proof of work blockchains such as Bitcoin and Litecoin.

Utility
A key factor in the price of any cryptocurrency is its utility. If you cannot use it for something, be it an investment or for payments, then it would have no or little perceived value. In the case of Bitcoin, it is usable for payments on a reasonably high and ever increasing scale, meaning that its utility is high. Its high difficulty and energy usage give it a reasonably high price and as such can be used for an investment. The changes to utility can cause price volatility.

In the case of Ether, as it was designed a smart contract platform this is a practical utility, which increased the price of Ether over many other alternative cryptocurrencies.

Public Perceptions


The public perception of a cryptocurrency has big bearing on the value of the currency. In the case of Bitcoin, a driving factor can be people reacting positively to the innovations and the fact it is a thorn in the side of the mostly corrupt banking sector and gives competition which cannot be tampered with in the traditional way, but can also receive negative reactions and associations with criminality.

Hacks to major cryptocurrency exchanges such as Mt. Gox can also affect the reputation of Bitcoin and price in a negative way, yet innovations such as multi-signature security on wallets or innovations and payment gateways coming online can create a positive reaction.

Many cryptocurrencies are not known in the public eye bar a few and the smaller ones typically have a cult following, so their prices are much lower than say Bitcoin, Litecoin and Ether.

Many cryptocurrencies are reusing the Bitcoin code and just changing some of the specifications such as the coin supply, proof of work algorithm or adding other features. How much a currency has ripped off of Bitcoin with no innovation or potential utility over Bitcoin can affect its reputation.

Price of Bitcoin
Bitcoin is often seen as the ‘reserve currency’ of the cryptocurrency world. Rises and falls to the price of Bitcoin often has a knock on effect with other cryptocurrencies. Litecoin in particular often has price reactions proportional to the rise and fall of Bitcoin price, but without the difficulty increase that Bitcoin has in respect to the power used to secure both blockchains.

As Bitcoin was the first mainstream cryptocurrency and is the most supported, the price of Bitcoin can often influence the other cryptocurrencies.
 

Villager

Regular Member
Joined
Dec 1, 2016
Messages
782
Likes
816
Country flag
Media
The medias reporting on Bitcoin in either a positive, or negative way can have influence on the public perceptions of Bitcoin, and can influence the price. This can even be used as an avenue to potentially manipulate the price, as many media outlets are owned by a few individuals and it is a major vector for potential price manipulation, as well as reporting on positive and negative aspects of the currency which can cause the price to fluctuate.

Investors
With all cryptocurrencies, especially smaller less known ones, investors can manipulate / inadvertently affect price in the following ways:

  • With a large amount of capital at their disposal, can buy a large percentage of the coin supply, then attempt to promote good stuff about the coin to ‘pump’ the price.
  • An investor making a large investment in a small coin can cause inadvertent price increases and falls.
  • People seeing investors have confidence in a cryptocurrency can encourage them to invest, and the more investors and the more demand for a currency, the higher the price.
Scams
Cryptocurrencies can sometimes be developed as a scam. This can often be associated with a coin that promises the latest and greatest technology, but is also ‘premined’ by the developers before release. This ensures they hold a good chunk of coin supply before coin release so when it is given value they dump their holdings, which crashes the value for other investors but can potentially earn the scammers a large sum of money and it is often difficult to prosecute such scams and in many jurisdictions impossible at present.

Instamining is a variant where the ability of coins to be mined is higher at the beginning after release to achieve the same goal.

Investment scams often cause people to invest in a cryptocurrency or even pay money towards the developers to develop the currency, where the only intention is to run off with the money of investors.

Due to the public nature of a blockchain, premines and instamines can easily be spotted, and when discovered often cause the value of the coin to plummet, this can happen before or after the developers did their dump of coins.

Market Dilution
This does not so much apply to Bitcoin, Litecoin, Peercoin or Ether which all had a unique purpose at the time of development. There is many a new cryptocurrency released every day, many rips from the Bitcoin source. Due to the number of cryptocurrencies often with no practical utility* saturating the market, alternative cryptocurrencies can find it hard to gain any sort of ground in an already diluted market.Bitcoin stood out as the first with good development, Litecoin stood out as a ‘silver to Bitcoin gold’ coin, Peercoin used an innovative POW and POS (proof of stake) combination. Ether had a practical utility for being a smart contract token to allow distributed, secure execution of smart contracts, for the price of what the ether token is, which very few cryptocurrencies can do.

Innovation
With many cryptocurrencies being a clone of Bitcoin minus adjusting numbers, innovation is another thing which can affect price. Sometimes this results in a currency gaining ground, sometimes this alone is not enough but it is a price factor. The key innovations of some currencies are below:

Bitcoin
Bitcoin was the first mainstream well designed cryptocurrency, was released as open source and bought many innovations on its own and new innovations are still being developed for Bitcoin. It holds the #1 spot on cryptocurrency price at present.

Litecoin
Litecoin was the development of a ‘silver to Bitcoin gold’ and was designed to be used for smaller payments with a faster transaction confirmation time and as a result, higher network capacity due to more blocks being produced. This held Litecoin at the #2 spot for a long time, although Ether took this spot at present in 2016.

Ether
Ether had innovation and was not designed as a ‘currency’ per se but is often used as such. It used its own POW hashing algorithms and system rules, and was designed as a token to use the Ether network to execute computer code such as in a smart contract in a way where it was verifiable what was executed, due to the distributed ledger which is the Ether blockchain.

Unobtanium
Unobtanium had a fair launch and was designed as a cryptocurrency which is ‘rare’ to be used as a store of value, with a capped supply of 250,000 coins. This was an innovation in its own right, being merge mined with Bitcoin by some pools also give this blockchain high security. Alas, the price never went anywhere close to Bitcoin and was surpassed by Ether and even Litecoin in some cases. This could change in the future, however if the coin gained more exposure.

Innovation is not always enough on its own, as shown by the Unobtanium coin; but innovation can be a driving factor if it brings something unique with high utility to the table. This factor has been mocked also, by the development of some cryptocurrencies being mocked the fact many other cryptocurrencies just rip off the Bitcoin source code and many new coins a day are coming out with this problem. An example of community members reacting to this by mocking is here.

Confidence in traditional systems
When confidence in the traditional systems increase, such as the price of the U.S dollar going up, this can cause some people to go back to storing assets using traditional currency. This can have an effect on the price of Bitcoin in particular, and in turn the other cryptocurrencies, Bitcoin being the de facto reserve currency of the bitcoin world.

Legal and governmental issues
Legal and governmental issues can influence the price, if a government beings being oppressive with tax or asset laws, it can be trivial to hide assets in a cryptocurrency, this perceived value by a country of investors can cause changes in price. Legal moves which are positive for a cryptocurrency such as making them official as currency can have a positive effect, while a country banning it could have a negative effect.

In the case of Ecuador, they banned the Currency, while some other countries gave cryptocurrency official status as currency for tax purposes. The lack of legal framework in many countries is still a hurdle, as legal precedents for cryptocurrency are still being set. And due to the limited ability to control cryptocurrency on the open internet can mean it can be used against the will of a government even.

Volatility of cryptocurrency
Due to cryptocurrency being an emerging market and due to the changes it imposes on the financial system, the market is still volatile, coupled with many of the factors above, the price of a coin can rise and fall quickly, making it a risky investment without proper research carried out, but the utility of them can make them usable for payments as well as an investment which was one of the original intentions behind Bitcoin. The volatility is decreasing over time and this should hopefully result in lower volatility levels in the price.

Summary
This article has discussed many of the driving factors of cryptocurrency price and why people give it value. There are many factors, especially the price of Bitcoin, the de factor reserve currency of the Bitcoin world, price of the U.S Dollar, Innovation, energy put into securing the blockchain of a coin, and reputation issues such as public perception, scams, and media response. Dilution of the market means many alternative cryptocurrencies will find it hard to gain a foothold. But many have a cult following so have some value. Legal issues can vary the price also as discussed above.

The world of cryptocurrency is here to stay, and as people give it value as a store of wealth in the case of Bitcoin, its revolutionary payment processing ability and the ability to work between borders are all reasons to continue to use cryptocurrency.

Conclusion
This article has discussed what affects the value of cryptocurrency and what can give it value. It boils down to perception of a majority, anything has value to someone because they believe it has value, for whatever reason they may have. The main factors affecting value of cryptocurrency have been discussed and summarized, and perception of value is what ultimately gives it value, what people are willing to put in to get a unit of cryptocurrency, be it time, fait money or labour.

The same applies to any commodity such as food, water, shelter, technology or any other commodity. Effort put into creating/obtaining it and demand. So keeping cryptocurrency positive in the perceptions of people is key to maintaining value in any cryptocurrency or commodity.

https://bitconnect.co/bitcoin-information/10/how-is-the-price-of-cryptocurrency-defined
 

indiazain

Regular Member
Joined
Oct 25, 2016
Messages
250
Likes
395
Country flag
Cryptocurrencies are only as strong as the crypto that protects them.Also let us not forget that banks own us and they will not let go of that power so easily.With the advent of quantum computing a lot of the background algorithms maybe cracked.Also ur money is only as safe as ur private key whereas in normal bank their are checks and balances built into the system to prevent u from getting defrauded.If anything over a period of time some banking agency visa or mastercard may build their own blockchain (or use similar technology) to conduct banking.
 

Kanobioz

New Member
Joined
Aug 12, 2018
Messages
1
Likes
0
We can focus on blockchain technology itself. Blockchain innovation was developed for digital forms of money the as a matter of first importance yet it can be utilized successfully for business as well, from various perspectives it can make a general working of your organization more gainful and beneficial. Look at emercoin blockchain - a great example of useful blockchain services.
 

Global Defence

New threads

Articles

Top