Over the past month, Bitcoin has become almost synonymous with the word bubble. In fact, Google searches for the combination words “Bitcoin” and “bubble” has jumped exponentially. That is unsurprising considering Bitcoin’s phenomenal ascent—piercing through record after record.
Even as calls and forecasts for Bitcoin’s eventual collapse intensify, the enthusiasm has intensified, as well. The cryptocurrency is now available for trading on the Chicago Mercantile Exchange floor, making its way forward as a form of legal tender. It’s also unsurprising, then, that in another Google search, the word combo of “buy” and “Bitcoin” is also at a record high.
So, how can we gauge Bitcoin? We cannot! And that is what I call the Unknown Factor.
Chart courtesy of Google Trends
Bitcoin is No Tulip
Some prominent figures including Jaime Dimon CEO of JPMorgan Chase & Co and John C. Bogle-founder of Vanguard Group. have labeled Bitcoin as a bubble, even the world's most famous investor Warren Buffet has been a skeptic on Bitcoin labeling digital currencies a “mirage.” In fact, most of all, the latest Bitcoin surge is compared to the Tulip Mania that took place way back in the 17th century in the Dutch Republic. Back then, Investors got caught up in a frenzy of tulips and began speculating on their price. A bubble was inflated, and eventually, like every inflated bubble, in 1637 the tulip bubble burst, leaving investors “wounded” and with “hefty losses.” The difference between then and now is that a tulip is, for lack of a better description, a “useless asset.” As a commodity, the tulip, albeit pretty, is nothing more than a decaying flower with no real use or applications in food or industry. Unlike a commodity such as gold or silver, a tulip cannot be used for jewelry.
Continue reading "Bitcoin: The Appetite for the Unknown"
An investment, as described by Webster dictionary, can be anything that an investor believes will produce income in the future or be worth more than it is today at some point in the future. Common investments include but are not limited to stocks, bonds, real estate, jewelry, artwork, or antiques.
Speculation, again as described by Webster dictionary, is the assumption of unusual business risk in hopes of obtaining commensurate gain. The dictionary has a definition of speculation specifically for students or kids which is, 'the taking of a big risk in business in hopes of making a big profit.'
The current situation with Bitcoin can best be explained by quoting the Merriam-Webster website when it is explaining speculation.
"Speculation can increase short-term volatility (and thus, risk). It can inflate prices and lead to bubbles, as was the case in the 2005-2006 real estate market in the UniteStates. Speculators who were betting that home prices would continue to increase purchased houses (often using leverage) intending to "flip" them for a profit. This increased the demand for housing, which raised prices further, eventually taking them beyond the "true value" of the real estate in many markets. The frenzied selling that ensued is typical for speculative markets."
Currently, it would be hard for anyone to argue that Bitcoin and other crypto-currencies aren't experiencing speculator behavior based on the above explanation. Continue reading "Bitcoin; Let's Just Call It What It Is, A Speculative Investment"
In a recent Bloomberg phone poll, 46% of Americans had no idea what Bitcoin was, while 42% knew that it was a virtual currency. Even funnier was the fact that 6% thought it was a new iPhone App and another 6% thought it was an Xbox game. I found that poll amazing, as I was sure that more people knew what Bitcoin was.
Exactly what is Bitcoin and how does it work?
Bitcoin is the world's first decentralized digital currency. Originally outlined in a paper by Satoshi Nakamoto in 2008, the Bitcoin network was developed and the first Bitcoins were released in 2009. This experimental cryptocurrency process claims to conduct quick, freeze-proof, irreversible chain of digitally-signed transactions in any country, without using a financial institution as an intermediary.
Bitcoins are predictable and limited in supply, unlike that of centralized currency. The total amount of Bitcoins in circulation is set to top out in 2140 at 20 million coins.
This open source, peer-to-peer payment network and digital currency uses public-key cryptography for security. Users send payments by broadcasting digitally signed messages from their "wallets" that transfer ownership of Bitcoins to another user. Then a decentralized network of specialized computers called "Miners" verify and time stamp all transactions using a proof-of-work system. The operators are then rewarded with transaction fees and newly minted Bitcoins.
Bitcoin was first noticed due to its use in illegal activities. In 2013, the FBI shut down the Silk Road online black market and seized $28.5 million worth of Bitcoin from the alleged mastermind. More recently, they have gained traction in the investing community and can be used to buy everything from pizza to a Tesla car. Even with its volatile exchange rate, do you think Bitcoin will be able to overtake current forms of currency and change the way people use money online?
INO.com & MarketClub.com