With Bitcoin prices surging by roughly 2,000% in the last year, the cryptocurrency is often compared to the Nasdaq Bubble, Tulip Mania, and other hype induced crazes throughout history.
Not Your Ordinary Bubble
Bitcoin (COIN) (OTCQX:GBTC) has surged by over 50% following its roughly 20% correction a week ago. The resilience of the cryptocurrency is remarkable as BTC continues to hit new highs seemingly each day. With prices up by over 2,000% in the last year alone, people are often equating Bitcoin to former bubble like phenomenon, the Nasdaq Bubble, Tulip Mania, and other hype induced crazes throughout history. However, is it possible that “The Bitcoin Mania” is only in the opening stages of this historic run? If so, how high could the price go? And what if Bitcoin is not in a bubble at all?
What Bitcoin Is
Bitcoin can be considered many things, a store of value, a digital commodity closely resembling a digital version of gold, a speculative trading instrument, a form of currency…
BTC The Store of Value
With a roughly 2,000% increase over the last year, Bitcoin has become an enormous source of value as well as a store of wealth for people who own BTC and believe the digital commodity will keep appreciating going forward. These individuals are different from speculators, as they own their bitcoins with the expectation that BTCs will be worth a lot more in the future.
A Speculative Instrument
On the other side of this equation, BTC has clearly become a speculative trading tool for other individuals. With such astronomical gains, traders and speculators are flocking to BTC to buy high and sell even higher.
Perhaps the most fascinating aspect of Bitcoin is its commodity like properties. Just like all physical metals, BTCs must be mined to come into existence. Moreover, Bitcoin mining is difficult, expensive, and comes with proof of work. This phenomenon is what inherently makes BTC a valuable commodity, much like gold. Conversely, what makes it different from gold and all other physical commodities on earth is BTC’s finite amount, only 21 million bitcoins can ever be mined.
Therefore, Bitcoin is a speculator’s dream in this respect. Can you imagine how much gold would be worth if market participants knew that only 21 million ounces could ever be pulled out of the earth, and we were in the process of mining close to the 17 millionth ounce? That’s kind of the sweet spot BTC is in right now, and that limited amount makes the digital commodity extremely desirable to own.
Moreover, a recent report reveals that between 2.78 and 3.79 million BTCs appear to have been lost forever. This implies that the overall pool of Bitcoin is likely to be scarcer than previously expected and a mere 17 to 18 million will ever be in circulation instead of the previously thought 21 million.
BTC as The World’s Currency
In addition to being a legitimate digital commodity, and a store of wealth, Bitcoin also has extremely strong currency like characteristics. It explicitly exhibits traits like durability, divisibility, transportability, scarcity, recognition, is believed to be impossible to counterfeit, and in time should gain stability as well as consistency. Moreover, it can’t be printed continuously like fiat currencies, is not controlled by a central authority, and has a genuine possibility of becoming the currency of the world one day.
Transactions using Bitcoin continue to increase, and with roughly 280,000,000 transactions, BTC could hit 300 million total Blockchain transactions by the end of 2018. Furthermore, Bitcoin is being recognized as legal tender by governments, which is a huge step towards mainstreaming BTC as a legitimate world currency. Recently, Japan officially recognized BTC as legal tender in April 2017, a move which is likely to be followed by other nations around the globe.