Bitcoin was intended to be an online currency – a way to exchange value between two parties without the need for an intermediary (third-party like VISA or a bank). Since it started gaining popularity in the last two years and it’s value has been driven too high for it to be useful for micro-payments, bitcoin has turned into something else.
The euphoria around bitcoin and it’s growing price nowadays is not based on its key values:
- trust / security
Instead, it seems that many if not most people are not using bitcoin, but buying bitcoin as an investment. Bitcoin has become a digital asset that investors buy to hold and sell for profit later. The higher the price surges, the more coverage it gets, the more FOMO (fear of missing out) we see. This drives further purchasing and pushes the price even further. A clear bubble effect (which isn’t necessarily a bad thing as we have discussed here). If anything, this bubble is even more pronounced than ever before:
You wouldn’t find many people today who will pay 0.000393 BTC (5 USD) for a coffee – because they know that tomorrow it might be worth 8 USD. It can turn out to be a very expensive coffee or pizza.
The bitcoin price increase is not driven by any big changes in the system – the key values haven’t changed, the adoption hasn’t changed much, there isn’t anything better than there was a year ago (one could argue it actually got worse – high transaction fees being one example). Bitcoin isn’t a company, that has some capital, employees, good profits and revenue. Yet the price is going higher and higher. The only reason for this is continued interest and buying by investors (be it institutional or private – professional or amateur) for speculation.
On top of the rising price and great returns of bitcoin, there’s hardly any regulation, it’s easy to buy and sell and you don’t have to register with a broker and have a minimum entry amount. Anyone can be a trader with bitcoin – which makes it so attractive and pushes the price up.
But there will be a correction – a time, when there won’t be enough investors to keep pushing the price up, triggering a cascade / chain reaction of panic selling.
- bitcoin is no longer a currency for any kind of payment, but a digital asset for investors (less similar to dollar, more similar to gold or stocks)
- anyone can be a trader within a few clicks – which is probably the top reason why bitcoin price is rising
- the price is driven up by FOMO – price goes up, because people buy it, because price goes up…
- it is a bubble, but you can still profit – here’s how
- this changes how you should view the opportunity and manage your investment