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Why is Bitcoin the subject of speculation?

9 min read
Why is Bitcoin the subject of speculation?

Why is Bitcoin the subject of speculation?

The debate over the exact nature of Bitcoin and other cryptocurrencies is not about to die down. Some would like to see bitcoin as a currency in its own right, capable of replacing the euro and the dollar in daily purchases. Others consider it as a reserve asset, to be kept for the long term. Still others, and they are often detractors of bitcoin, only see it as a currency of speculation, like shares on the stock market, and therefore accompanied by tangible risks, but nevertheless capable of attracting enthusiasts. easy money. So what is the exact nature of bitcoin?

If we look at Bitcoin’s brief career since its appearance in 2009, we must recognize that it has often been perceived as an instrument of speculation. Rightly or wrongly, some wanted to see him as a source of easy gain. If this was true for a small number of them, others may have had the impression of having placed their funds on quicksand. The regulatory bodies at work in Europe as elsewhere therefore wanted to better regulate an area which, until now, seemed to escape them and which has not always lived up to the initial hopes based on it. The big question remains: what is the exact nature of Bitcoin? Is it

of a currency in its own right?
a very long-term investment?
a simple tool of speculation?

The original intentions of the creator of Bitcoin
When he was inspired by Bitcoin, Satoshi Nakamoto certainly did not perceive it as an instrument of speculation. He envisioned it as an alternative to traditional currencies.

The White Paper published by Nakamoto at the end of 2008 is clear on the nature envisaged: it was to be an alternative payment system with the particularity that it is based on a network of “decentralized” computers rather than on the computer of a central bank. The 2008 banking crisis then had serious consequences on the household economy and bitcoin therefore wanted to appear as a currency that could not be subject to manipulation by financial institutions or governments. The solution was therefore based, according to Nakamoto, on an “ electronic payment system based on cryptographic proof allowing two parties to carry out direct transactions with each other, without the need for a trusted third party ”.

The evolution of bitcoin
However, the short history of bitcoin has been strewn with unforeseen events or even mishaps, capable of associating it with a feeling of instability and uncertainty.

Bitcoin started in 2009, when it was worth less than a dollar. The interest of a handful of geeks gradually snowballed and its value continued to rise, slowly but surely. On February 9, 2011, when the first enthusiasts of the field discovered that 1 BTC was equal to 1 dollar, the surprise was great.

However, BTC will continue its rise. Curiously, it is a darknet site which brings it unenviable but nevertheless intense publicity: on The Silk Road , we happily take advantage of the anonymity that Bitcoin allows to obtain payment for drugs like from a hitman. Another event came into play: in 2012, when the banks in Cyprus closed, hundreds of millions of dollars were lost by the holders of laundered Russian money. Perceived as a safe haven, the price of Bitcoin then rose from 20 to 200 dollars in a few weeks. With the help of notoriety, certain investment funds have started to speculate on bitcoin and it will rise even further. However, relapse is not far away. Following the arrest of the founder of The Silk Road and the closure of this electronic souk, bitcoin saw its value fall to around $100.

On January 3, 2017, faced with the uncertainties linked to the election of Donald Trump but also thanks to its growing notoriety, bitcoin passed the $1,000 mark on the market places. It was the start of an unprecedented speculative wave which reached its peak in January 2018: more than 20,000 dollars. Before falling again to around $10,000.

In spring 2021, following a tweet from Elon Musk indicating that it will become possible to pay for Tesla automobiles in Bitcoin and the news that he himself invested 1.5 billion of his own dollars in this currency, bitcoin is experiencing a new surge followed by a fall after the disavowal of the same Elon Musk.

However, Bitcoin has become more accessible to the general public thanks to the appearance of applications making its use easy. Exchange platforms have multiplied: Binance, FTX, Coinbase… Major financial institutions announce that they are taking bitcoin seriously and among them, Goldman Sachs or Merril Lynch… Banks are deciding to integrate this currency into their offer, like the Swiss bank Falcon. At the same time, bitcoin is the subject of intense media buzz. A large number of people confined at home due to the pandemic are therefore interested in bitcoin in the hope of making rapid capital gains. It will exceed $68,000 in November 2021.

However, from the spring of 2022, the price of bitcoin began to decline again, falling to $17,500. Bitcoin seems to have suffered the repercussions of four phenomena:

the rise in interest rates;
the return of inflation due in part to Russia’s aggression against Ukraine;
the ups and downs of the stock market;
the crash of a young cryptocurrency considered a star of the field at the beginning of 2022, Terra Luna.
However, despite the predictions of ominous prophets who saw it falling to $10,000, at the end of July 2022, its price seemed to have stabilized around $21,000, or a third of its value a year earlier. .

A currency in its own right?
Can we consider bitcoin as a currency in its own right? It is difficult to say at the time of writing these lines. Businesses and websites that accept bitcoin as a means of payment remain a minority worldwide. Bitcoin suffers from slow transaction processing — around 3,500 transactions per day in spring 2021, compared to 84 million transactions processed by Visa at the same time.
Obviously, certain countries such as El Salvador or the Central African Republic have decided to adopt it as their official currency. It is true that, even though no bank is involved, the implementation of bitcoin as a payment system is relatively easy, particularly thanks to the Lightning Network, an overlay of Bitcoin designed to facilitate large-scale use. From a wallet such as Blue Wallet, users scan a QR code at a merchant and see their account debited for the requested amount. However, usage by the population and businesses is struggling to keep up.

The main concern is this: the BTC price is still a little too volatile. Let’s not forget that its price was divided by three in a single year.

Imagine the situation: you learn that a store is selling an electric bike for 0.0489 BTC on Tuesday at 11 a.m. (i.e. around 1,000 euros). By the time you arrive at this store an hour later, you have to pay 0.0512 BTC to buy it because the price of bitcoin has fallen in the meantime and the seller has therefore adjusted his offer. Let’s face it: this situation is difficult to live with for both merchants and customers.

The price of BTC would therefore need to stabilize little by little for it to be possible to consider it as a currency usable in everyday life. Bitcoin was designed so that it would be impossible to exceed 21 million units in circulation, and by 2024, there will only be 1 million bitcoins left to “mine” (produce). The closer we get to the threshold of 21 million, the more the price should stabilize, but this deadline will be around the year 2140!

A long-term investment asset
At first glance, if we follow the evolution of BTC over 12 years, it seems more logical to see it as a long-term investment. In fact, the Bitcoin curve shows a notable increase: anyone who acquired them at around $100 in early 2013 and quietly kept them would have multiplied their assets by more than 200. By comparison, if he had purchased shares of Apple, the star of the stock market, at the same time, he would have seen these assets multiplied by 12.

“ Bitcoin is continuously dependent on maintaining a vast network of interconnected, power-intensive computers ”

Bitcoin would therefore above all be a hoarding asset, comparable to gold, the rarity of which guarantees a stable or growing value. Established institutions such as JPMorgan Chase or Blackrock agree. It turns out that large holders of BTC, called “whales”, generally seem to want to hold them for as long as possible and in any case, avoid massive sales. And for good reason: the day one of them sheds a majority of its bitcoins, the price would suffer a major fall, which would benefit no one. So, a large number of people regularly buy BTC and let them lie dormant for several years.

However, talking about a risk-free investment is not possible. Gold, diamonds or even paintings are “physical” assets that depend only on themselves, while bitcoin permanently depends on the maintenance of a vast network of interconnected and power-intensive computers.

An instrument of speculation
Is bitcoin above all an instrument of speculation? Various research seems to suggest that this practice increases during times of uncertainty. And in fact, since 2017, bitcoin has been the subject of a speculative bubble that some have associated with the arrival of Donald Trump as president of the USA. However, the fact that Bitcoin is perceived as a tool for speculation has also corresponded to the entry into this market of reputable investors, important players in finance, but also lovers of quick profits.

Many well-known bloggers and financial analysts have published columns that have helped create credibility around bitcoin. Thus, in June 2017, one of them, Brett Donovan, allowed himself to predict that bitcoin was capable of exceeding $3,000, and the facts quickly proved him right.

“ Many users wanted to believe that there was a way to earn a lot of money quickly ”

Many users wanted to believe that there was a way to earn a lot of money quickly. Some who knew how to buy at a time when the price was relatively low and had the prescience to resell at a “high” moment shortly preceding a relapse have made significant capital gains. Others were less far-sighted and in fact, you don’t become a speculator overnight. It turns out that the tweets of certain influencers such as Elon Musk can have a strong influence on its price, both up and down, and that they are most often unpredictable.

We have seen it: the Covid 19 pandemic corresponded to a prosperous period for bitcoin and other cryptos. Confined to their homes, the population of developed countries has received strong financial support from states and has invested massively in the cryptocurrency sector. Prices increased 10-fold between March 2020 and November 2021.

But here it is: galloping inflation has developed in the USA, and the central bank has therefore decided to raise its interest rates. Prices were divided by three in the first part of 2022. The war launched by Russia in Ukraine only accelerated the downward movement. Speculators were therefore reduced to looking for their thrills elsewhere.

A tool to master expertly
What to say ? The perception of Bitcoin as a long-term investment asset appears to be the most sensible to date. Using it as a tool for speculation requires expert knowledge of this “science” if we can even use this term. It is likely that, for those most aware of this practice, other currencies seem to have more potential in the short term: Ethereum V2, Solana, Tezos… With one downside: the crash of Terra Luna is there to remind us that a A factor of uncertainty still reigns in this young field.

Nowadays, institutions that advise their clients on investment often recommend diversifying their assets and including cryptocurrencies, such as BTC, among other more traditional values ​​such as gold or stocks in their portfolios. in companies like Apple or Microsoft that have more than proven their performance over time.

The fact remains that a new surge in bitcoin is entirely possible in the future and that its price could gradually exceed $100,000. The question is when exactly such a takeoff might occur. The question remains open and could well depend on events that are very difficult to predict today. Needless to say: the great days of bitcoin as an instrument of short-term speculation could well be behind us.

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