Bitcoin’s cost has once again soared lately as has the cost of a number of its other cryptocurrency peers, such as Ethereum – producing this very modern form of investing in a really’sexy’ topic at the moment.
Could the famed new’money’ replace the world’s most traded material? And is that a bubble ready to burst?
The apparently ever-increasing price of Bitcoin renders the entire world holding its breath again – as we did in the end of 2017 – awaiting in expectation for the obvious bubble to burst.
That is according to Wiehann Olivier, Partner and Digital Assets Lead at Mazars in South Africa, who states that the volatility of Bitcoin along with other cryptocurrency prices continued to reevaluate weekly analysis and projections from the beginning of December this past year. ‘Bitcoin has broken through many thresholds and psychological barriers attaining a fresh record high of over $41,000. What was interesting is that Bitcoin, and other cryptocurrencies, weren’t nearly as topical as they had been when it set its past record high of $19,500 in the end of 2017. This has obviously raised the question regarding why there has been a significant increase in the price of cryptocurrencies, and that was accountable for it.’
‘This caused us to believe that this bull run has been largely attributable to retail investors. Of course at the end of 2020, one could have expected to see the identical fashion, however, something was different: there was a sudden rise in the Bitcoin price sparked by an announcement that PayPal had made a decision to embrace Bitcoin in late October 2020.
‘This set the foundation for what was to come. Back in December 2020we observed yet another bull run, leading to Bitcoin becoming a $1 trillion market cap advantage. However, this period the gain in the value of Bitcoin was pushed by institutional investors – the likes of the likes of Skybridge Capital and Mass Mutual – instead of retail investors’
Institutions’ reasons for investment in Bitcoin vary, but they’re often motivated by the necessity to handle their clients’ risk, and to hedge them contrary to the devaluation of specific asset classes which include local and foreign fiat monies, says Olivier. This is much like the manner that investors would put money into gold, to hedge themselves against a devaluation of fiat currencies and other asset classes.
According to Olivier, the COVID-19 pandemic has created an’almost perfect’ storm in which governments and central banks around the globe are under pressure to put policies in place and create sure controversial choices to best handle their economy. ‘But without a doubt, not everybody would agree with these decisions. This made a reason for institutions and investors to transfer their wealth away from controlled currencies and asset classes to your totally free market.
‘Essentially, Bitcoin has come to be the electronic equivalent of golden – both share a few similar and valuable attributes’ As in the example of gold, Bitcoin is scarce, interchangeable, divisible but also more durable and portable compared to gold and expected to be broadly accepted, clarifies Olivier.
‘Its limitation is that the cryptocurrency is not yet trusted to be a store of value to the identical extent that the public hastens gold. That said, the bulk adoption of Bitcoin is rising. Gold has some industrial usage, but it has its value from other people believing it’s value -worth, hence, becomes reflexive in exactly the identical manner that people will think gold or a fiat money has inherent value if others believe it to also have worth.’
After this inherent belief in something’s value is diminished, any’bubble’ associated with it’s said to’burst’ or lead to hyperinflation, that has been witnessed many times lately. The exact same principle applies to Bitcoin: once more individuals think in Bitcoin becoming a store of value due to the shared and enhanced attributes to golden, it will finally result in an increase in demand and an increase in its value. If this inherent belief vanishes, the bubble will probably burst.
‘Interesting views on which the Bitcoin cost is anticipated to end up are still a source of disagreement. The market cap of gold is currently trading at about $10 trillion, but there’s only predicted to be around 21 million Bitcoin in flow according to its protocol. Because of this, both aren’t quite equal – perhaps, yet.
Depending on the hypothetical replacement of golden from Bitcoin the cost of one Bitcoin could be anticipated to be approximately $470,000. This might be considered a very optimistic outlook, but when Bitcoin took just half of the market cap of gold, then it could still wind up at about $235,000.
Olivier states that the frequent mantra of’it is about time from the markets rather than timing the markets’ applies in this situation. ‘Bitcoin has experienced several bubbles, not one of which have burst, over more than a decade with each bubble raising its value. It is noteworthy that with every drop in the price subsequent to a peak, the lowest subsequent value in a cycle rises from the preceding as consciousness increases’
If an investor had bought Bitcoin in its famous peak in 2017, held onto it although it had dropped 70 percent of its value, that investor would have almost doubled his investment value going to demonstrate that Bitcoin is still a long term investment and could be even more valuable later on.
‘Whether investors create short term profits in the volatility of Bitcoin or want to value their capital out of long term investment perspective it remains incredibly important to comprehend one’s risks, diversify and make informed decisions