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.
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 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.
