You expend money for all the computational power for bitcoin mining hardware and associated physical resources to get some virtual money, meaningless isn’t it?
Foreword
Bitcoin is the currency that has a theoretical limit of 21million units, which makes inflation theoretically impossible in it’s economy. Concurrently, the algorithm which is used to mine it becomes tougher and tougher the more you mine (It is said the computational effort doubles every 4 years) and it is predicted that the limit would be reached by 2041. Currently, there are approx. 17m units already mined which makes it’s economy worth a whopping 270 billion USD. I started hearing about bitcoin since 2012 when it was 7 USD, if I could and had put 1000 rupees then, it would have been 23 lakhs rupees. (Aw, snap!)
December 2017
The current hype and rise in it’s prices are due to the announcement of opening of futures trading on Bitcoin in 2 of the Chicago’s exchanges, CME group and CBOE. Which made it highly volatile and exciting therefore. It may also in small proportions be that due to the sudden hype it got, more and more people are getting aware of the currency and want to try their luck on this magical money-making algorithm, which made it boom (without being aware of the real reason of rise) The sudden rise in it’s prices made the alleged founders of Facebook, the Winklevoss twins, the first Bitcoin billionaires ( which they made by investing 11m USD 4 years ago which they got from the lawsuit they won against Zuckerburg).
The interesting fact is that the Chicago crytocurrency exchange CBOE works with a startup Gemini to launch the bitcoin contracts, a company founded by Winklevoss brothers themselves!
A Bubble?
Most popular bubbles in the world have seen a pattern of intense sudden excitement, mania and hype around them. Taking examples from history, British railroads in 1840s, Internet in 1990s with the transoceanic laying of fibre-optical cables. Even the great 2008 financial crisis is pointed to the proliferation of unregulated credit derivatives creating a mortgage crisis leading to breakdown of almost all world economies. The bubble expert William Deringer said: "Uncertainty of valuation is often a huge issue in bubbles”. That is what exactly that is happening with bitcoin right now. There is mania around. Everyone is getting to hear about it and news about bitcoin is spreading like wildfire. Bitcoin has already seen this excitement twice already, once in 2013 when it rose 5500%. All this rise is because of the uncertainty. Now with the opening of derivatives, volatility also will design the price. You expend money for all the computational power and physical resources to get virtual money that is not accepted only in the internet community, and a few products like subway and the famous the dark internet.
See the light
Consumers' point of view
If you make bitcoin equal to money, it will cause utter inflation in the economy with all this uncertain boom and volatility. For e.g., if a 5kg packet of rice costs .0001 bitcoin, and price of bitcoin doubles in a week, won’t it cause havoc in the society? That is the reason bitcoin won’t be accepted as a money not anywhere in the near future, not until it crashes and settles into a sustainable amount.
Investors' point of view
As an investor in bitcoin, you really need to be aware because it has already been derided by many governments. But a small portion of your wealth could be put into this euphoric hype is definitely not bad. Who knows, it might become worth lakhs in some years.
Trader’s point of view
As a trader, you will love all this volatility and uncertainty. Be sure, you are strong with your fundamental analysis. Be aware of what is going on around the economy day to day. You definitely can make returns in a huge scale. (better than 100% a month?).
Word of caution!
Ace ultra-longterm value investor Warren Buffet said "The idea that it has some huge intrinsic value, is just a joke”. RBI last week has cautioned not to buy bitcoin.
Comment if you agree or disagree!
A link to the original post: https://medium.com/@rohanrony/an-amatuers-view-on-bitcoin-perspectives-of-consumer-investor-and-trader-83fb023877fd
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