The view of the traditional financial market has changed with Bitcoin (BTC) amid its meteoric rise, with the cryptocurrency recently reaching over $ 52,500.
Lately Bitcoin has seen a growing wave of interest from mainstream companies, gaining status as a value reserve, exclusive to other classes of financial assets. But, what makes the price of Bitcoin valuable in the market?
Perhaps one of the simplest answers regarding the value of Bitcoin is that “it’s worth what someone will pay for it”, as said billionaire Mark Cuban in 2019 . A number of other components influence this pricing, which makes BTC unique in relation to competition in the market.
Although Bitcoin is still ‘young’, compared to other assets like gold and stocks, it should continue to be put to the test in the market, gaining momentum. However, devaluation cannot be ruled out either, as Bitcoin is also subject to volatility.
History and basic use of Bitcoin
Satoshi Nakamoto was responsible for creating Bitcoin, through a white paper published in 2008, and in early 2009 cryptocurrency entered the market, with no value attached to another financial asset.
BTC has circulated around online communities over the years, gaining value over time and as an online payment method that did not require sensitive user information involved. Regardless of its historic price increase journey, the Bitcoin is now frequently associated as a store of value, containing a number of valuable features.
Currently people can buy Bitcoin on an exchange and send it to a cryptocurrency wallet. Sending BTC to almost anywhere in the world quickly, at any time, without disclosing personal information, is one of the cryptocurrency’s outstanding features.
Large investors
In the past twelve months several major large companies added a significant investment in Bitcoin. Tesla, one of the ten largest companies in market capitalization according to AssetDash, announced on February 8, 2020 the $ 1.5 billion purchase of Bitcoin, for example. In addition to it, Square also announced a acquisition of US $ 50 million in BTC in October 2020.
Meanwhile, business intelligence firm MicroStrategy, led by company CEO Michael Saylor, recently bought more than $ 1 billion in BTC. Until then, Saylor was skeptical about Bitcoin, however, with more than 17,000 BTC units ‘in the pocket’, the executive is now considered one of the biggest defenders of cryptocurrency.
The entry of large institutional investors into the Bitcoin market apparently emerged amid economic turmoil after COVID-19 captured the market’s attention in early 2020.
The United States government, for example, increased the activity of its’money printer‘in the months following the start of the pandemic, through quantitative easing, revealing a mystery about the future value of the dollar.
The justification for the value of Bitcoin
As a decentralized and borderless asset operated by a computer network worldwide, called miners, Bitcoin and its price are not technically linked to any government, market or currency.
Sometimes, the price of BTC fluctuates by correlation with other markets, while on other occasions, the cryptocurrency’s value moves at the pace of its own performance.
However, some cryptocurrency market leaders, like Anthony Pompliano, co-founder of Morgan Creek Digital, claim that BTC is an asset without correlation with another market.
As proof of this, Fidelity Digital Assets published a report on Bitcoin in October 2020 stating that it found “almost no relationship between Bitcoin returns and other assets”, The report analyzed the performance of the cryptocurrency over the past five years, between the beginning of 2015 and September 2020.
Since entering the BTC ‘arena’, Saylor from MicroStrategy, who is fourth in the Cointelegraph list of the 100 most influential people in the cryptocurrency market in 2021, declared valuable aspects of Bitcoin in the market, as in that February 2021 statement:
“I think the story that needs to be told is that Bitcoin is much more of a masterpiece than monetary engineering.”
“It is the first monetary network designed successfully in the history of the world,” said Saylor after referring to aspects of science and engineering, as well as his studies at the Massachusetts Institute of Technology.
“Bitcoin is changing this year from the old narrative that it is an uncorrelated speculative asset”, Saylor said in a December 2020 interview HyperChange. “It is changing to a new thinking, which is the best long-term investment in the market,” he added.
In the interview, Saylor continued to defend Bitcoin’s long-term potential as a store of value that is out of government control, prompting investors to hold the balance in BTC for long periods of time.
Other justifications for the BTC price
Unlike U.S. dollars, gold or other financial assets, Bitcoin has a limited issue of cryptocurrencies. Ie, only 21 million BTCs must be issued based on the cryptocurrency code.
At the time of this publication, Bitcoin’s circulating offer currently stands at around 18.6 million. Through mining, more units of BTCs are released, thus gradually decreasing the total supply.
With Bitcoin, cryptocurrency holders can store and transfer large amounts of money much more easily than other valuable reserves, such as gold and or real estate. In recent years, the comparison of Bitcoin with gold, and sometimes the cryptocurrency is called digital gold.
“You cannot demote him; it is not a fiat currency derivative, like a bond or a share ”, Saylor said about Bitcoin during an interview in January 2021 with Nomad Capitalist. “If you are looking at a long-term perspective – 10 years, 20 years, 30 years – then owning Bitcoin is like ‘encrypting’ your monetary energy in a way that will preserve it without any degradation in the long run,” he explained. Saylor.
Investors can buy fractions of a Bitcoin, such as 0.001 BTC, for example. Bitcoin can also be seen as an industry or ecosystem of activity and development, similar to the Internet when it took off decades ago, and buying Bitcoin gives the investor a financial stake in that ecosystem, according to Tyler Winklevoss, co-founder of Gemini.
“It’s like having a piece of the race track without having to bet on the horse that will win,” said Winklevoss during an interview in December 2020 with podcaster, YouTuber and businessman Casey Adams. “While the races are going on, you make some money”, added Winklevoss.
Arguments against Bitcoin
Some experts have expressed several arguments against Bitcoin in the past decade. Cryptocurrency has suffered numerous price volatility cycles, dramatically increasing its value, also following periods of great devaluation, sometimes losing up to 80% or more, before resuming its upward trend.
Considered a defender of the gold market, the financial commentator Peter Schiff has stated his skeptical position on Bitcoin on several occasions. “Now that Bitcoin has reached $ 50,000, I must admit that a move of up to $ 100,000 cannot be ruled out,” said Schiff in a February 2021 tweet, which ended like this:
“However, a drop to zero cannot be ruled out either. While a temporary move of up to $ 100,000 is possible, a permanent move to zero is inevitable. If you don’t want to play, buy gold. ”
Other experts called the ‘bubble’ Bitcoin market‘, like Russian politician Anatoly Aksakov. Furthermore, Kenneth Rogoff, a professor at Harvard University, was hesitant about BTC.
“I’ve been skeptical about Bitcoin and certainly the price has gone up, but there’s a final question of what’s the use,” Rogoff told Bloomberg. “Is it just valuable because people think it is valuable? It is a bubble that would burst, ”he added.
Still, although Bitcoin is not technically “supported” by any other financial asset, it is also not tied to any specific country’s debt or struggle.
Bitcoin is managed by the people, has no borders and allows users to maintain and control their own funds, as well as conduct global transactions quickly. Cryptocurrency has faced its adversities since its inceptiongrowing in adoption each cycle.
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