Bitcoin the Future, Really?

With institutions adding Bitcoin to their balance sheets and El Salvador officially making Bitcoin legal tender, it’s looking like Bitcoin will be the future of currency, or at least an accepted store of value. However, with so much volatility in the market, risk-averse investors are still hesitant to buy Bitcoin, much less any other cryptocurrency.

Since Bitcoin isn’t controlled by a central entity, its monetary policy is much more sound than any government. Ark Invest CEO Cathie Wood describes Bitcoin as a “rules based monetary system”, as Bitcoin’s monetary policy is set by the parameters of the code. With governments printing out more money than ever before in light of the pandemic, investors are looking for alternative investments to hedge against inflation. Many are turning to Bitcoin to do so, facilitating adoption of cryptocurrency over the long-term.

Is Bitcoin a good investment? It can be, so long as you do your research and invest wisely. Investors might, however, turn Bitcoin into a bad investment if they try to treat it like any other asset.

01. Bitcoin’s Future Outlook

Bitcoin is a good indicator of the crypto market in general, because it’s the largest cryptocurrency by market cap and the rest of the market tends to follow its trends.

Bitcoin’s price has taken a wild ride so far in 2021, and in November set another new all-time high price when it went over $68,000. This latest record high follows previous high points over $60,000 in April and October, as well as a summer drop to less than $30,000 in July. This volatility is a big part of why experts recommend keeping your crypto investments to less than 5% of your portfolio to begin with.

But how high will Bitcoin go? Bitcoin’s past may provide some clues, according to Kiana Danial, author of “Cryptocurrency Investing for Dummies.”

Danial says there have been plenty of huge spikes followed by pullbacks in Bitcoin’s price since 2011. “What I expect from Bitcoin is volatility short-term and growth long-term.”

Others are more bullish on Bitcoin’s short-term growth.

Bill Noble, chief technical analyst at TokenMetrics, a cryptocurrency analytics platform, thinks the price of Bitcoin will climb throughout the rest of the year. “I think it’s more likely Bitcoin goes to $75,000 than $25,000,” he says.

02. Store of value and not currency

The governments of different countries might not accept crypto as a mode of payment. Several of them have already imposed bans and restrictions, limiting the ability to trade in cryptocurrencies.

At the beginning of this year, the Indian government was planning to impose a complete ban on cryptocurrency and had also proposed a bill for the same. It has softened its stance since then and believes that the proposal is outdated but, still isn’t willing to accept crypto as real money. Instead, it’s planning to list cryptocurrency as asset class which will take it closer to real estate than actual money.

Every economy is built on government’s control over its currency. This allows the government to decide how much of a currency should be printed in response to external and internal pressures. If cryptocurrencies replace rupee or dollar, that power is taken away. For example, Bitcoin has put a cap of 21 million. This means there are only 21 million Bitcoins in the world and more cannot be minted. Even if there is a need.There are other genuine concerns too. The whole idea was to make decentralise financial transactions and that’s what works against Bitcoin and cryptocurrency. These transactions could facilitate illegal activities like tax evasion, money laundering and dealings in illegal activities.

03. Not Bitcoin. This will be the future of money

The latest frenzy is only making the case stronger for a stable, centralized, state-controlled rival. Enter digital cash.
Bitcoin’s wild gyrations in 2021 have made sure of one thing: The future of money will be electronic, but it won’t remotely resemble a cyberpunk utopia. People’s power will bow to sovereigns’ might.

The mania and panic that have gripped decentralized cryptocurrencies are heightening the attraction of their coming rivals: digital cash, issued by central banks. These tokens will be staid, centralized and state-controlled. That’s exactly what users will want in an Internet of Things world where machines need to settle claims with one another all the time, instantaneously, but without contributing to global warming.

Official electronic coins will be a new type of central bank liability alongside physical cash, though for investors betting on the future value of the dollar, yen or the euro, they won’t be a novel asset class.

04. Network of payments

The software stores a continuously updated ledger that records all Bitcoin transactions. The code sets the scarcity of Bitcoin, and mining introduces new Bitcoins at regular intervals. This form of earning Bitcoins consists of solving the math problems necessary to confirm transactions. Successful solving of those problems using mathematical calculations triggers the creation of more currency.

Limitations of 

A civil war is over the future of Bitcoin ever since its launch, and it is already showing strain. Bitcoin’s share of the market cap of all cryptocurrencies fell from 85% to 41%. Its price has soared and not dropped, but many rivals have risen even faster. Moreover, the Bitcoin network can only process seven transactions a second due to code limitations. This quantity is trifling considering that the system aspires to serve the masses. As the load increases, it takes time to confirm transactions, and customers have been at odds. The bickering threatens to condemn Bitcoin to obsolescence or divide the currency into two versions. All in all, although Bitcoin allows the transfer of value, it is slower and more limited in its capacity than some of its latest rivals.

Bitcoin seemed to be on a roll. El Salvador in early September declared the cryptocurrency to be legal tender, allowing it to be used for payments. There is talk of Bitcoin becoming a medium of exchange in Afghanistan, enabling financial transactions in a society where the issuance of conventional money has broken down. The cryptocurrency is even entering mainstream finance with this week’s introduction of a Bitcoin exchange traded fund on the New York Stock Exchange, allowing U.S. investors to speculate on Bitcoin prices without actually owning it. And of course early investors in Bitcoin have minted fortunes.

Amid all this hype, financial regulators in Washington have started to express increasing concerns about Bitcoin and other cryptocurrencies. Then last month, China brought down the hammer—banning all cryptocurrencies.

What Will Happen to Bitcoin in the Next Decade?

As regulation evolves to keep pace, it is likely that the ecosystem will expand. Schwartz predicts that the next decade will “bring an explosion of low-cost, high-speed payments that will transform value exchange the way the Internet transformed information exchange.”

So far in 2021, the price of Bitcoin has topped $60,000 before falling to around $40,000. Large banks are continuing to take notice of the cryptocurrency, with Goldman Sachs reopening its crypto trading desk and BNY Mellon opening custody services for digital currencies.

Citi said Bitcoin could be the currency of choice for international trade. This comes as both PayPal (PYPL) and Tesla (TSLA) made investments in cryptocurrency in early 2021. Tesla bought $1.5 billion in Bitcoin, while PayPal made a bid to buy crypto custodian Curv. Citi noted that Bitcoin’s future is still very uncertain, but that it’s on the cusp of mainstream acceptance. The institutional investor interest is driving broad interest in the cryptocurrency, but issues over custody, security, and capital efficiency are still headwinds for the digital asset, noted Citi.

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