on the crypto
Bitcoin (quotation BTC) is one of the most explosive investments in history. The cryptocurrency has grown by over 3.900% in the last decade alone. However, the market-leading cryptocurrency has also experienced a steep decline in valuation and is now down about two-thirds from its highs.
What will happen to Bitcoin? Read on to see two Motley Fool contributors illustrating the ups and downs for the world's most valuable cryptocurrency.
Bitcoin is a long-term pillar of strength
Anders Bylund: I am not a Bitcoin maximalist. In my view, every portfolio benefits from healthy diversification. In my cryptocurrency collection, for example, Bitcoin now represents only 27% of the total wallet value.
However, Bitcoin plays a specific role in my cryptocurrency portfolio and it's not a foregone move to build your long-term cryptocurrency investments around this pillar of strength.
Bitcoin has proven its worth over the years. What started out as a small experiment in secure digital accounting has proven its resistance to hacker attacks and rival cryptocurrencies. Many of the major cryptocurrencies on the market today were born as clones of the Bitcoin code, modifying only some of the key parameters of the system. For example, the popular Dogecoin cryptocurrency is a clone of a Bitcoin clone, with a different mining algorithm and without the Bitcoin lifetime limit on the number of existing digital coins.
Meme currencies like Dogecoin are expected to disappear over time because they were explicitly designed to have no value in the long run. Conversely, Bitcoin's miserly design parameters result in a clunky payment processor, but a potentially solid vehicle for long-term storage of monetary value.
It might be quite foolish to leave Bitcoin out of your wallet
The rigidly set limit of 21 million Bitcoins ensures that the cryptocurrency will be scarce in the long run. The last coin is expected to be mined before the year 2140, after which the minting prizes will be replaced by the transaction fees. If cryptocurrencies continue to expand their financial capabilities and global reach, then each Bitcoin could be worth millions of dollars. Experts say Bitcoin's total market value could exceed $ 300.000 trillion by that date, compared to $ 450 billion today. This is a potential gain of 67.000%. While the final value may be much less than this bold target, the profit potential remains huge.
So if you see a future for blockchain ledgers and digital assets, it seems rather foolish to leave Bitcoin out of your wallet. Today's young volatile is expected to grow and become a solid platform of value over the next two decades.
Bitcoin's value proposition is confusing
Keith Noonan: Bitcoin was initially advocated by many as a decentralized payment method, a veritable crypto currency. However, it has never seen actual use as a currency and doesn't seem to make much sense as such. Even though transaction times and fees have improved, the token is simply too volatile to be a good medium of exchange, even if it is immediately converted to fiat currency upon receipt.
The popular argument that Bitcoin is worth holding has shifted to the fact that the token is a form of digital gold that generally appreciates at a much faster rate. As long as the price of the token continues to rise in the long run, why shouldn't one want to own it? But there are elements of the decentralized store-of-value thesis that seem to falter.
Bitcoin was presented as a hedge against inflation and a bulwark against stock and economic market volatility. However, the token and the cryptocurrency market in general have moved in close tune with stock market movements and economic news. For example, it seems clear that the Federal Reserve's interest rate hikes have created significant selling pressure for Bitcoin.
While the adoption of cryptocurrency by institutional investors has helped the coin go mainstream and increase its value, it has made the coin increasingly connected with the financial systems that cryptocurrency is still supported as alternative. With Bitcoin's growing integration into the broader financial system, the risk of regulation has also increased.
The main mechanism that pushes the price up seems to be the FOMO, the fear of missing the opportunity. This may be enough to propel Bitcoin's valuation to new heights; It is true that behind the token there is a great brand and a dedicated community, but evaluating the cryptocurrency is a task that weighs on speculation.
