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Over the duration of its rather short history, Bitcoin has gained popularity and economic clout but also its fair share of skeptics. The peer-to-peer lending system utilizes data mining, based on the idea that there is a finite number of bitcoins, and flaunts its decentralized network. Basically, there is a certain point in time when all existing bitcoins will be extracted and there is no single entity, like a central bank, that has the ability to generate more. This important distinction has led to its designation as a commodity by the Commodity Futures Trading Commission (CFTC) in the United States. Regardless of its status, the digital currency has been rallying for about two months now, thanks in part to acceptance by financial institutions like Morgan Stanley and Goldman Sachs. With a current buy price of about $400, the money system has a record $1 billion invested in it.
Currently experiencing a bull run, in regards to its buy price at least, the currency was officially declared as such by the European Court. Executives and economists alike are predicting that Bitcoin will become the 6th largest global reserve currency by 2030. When well recognized banks begin to invest the estimated $1 billion over the next one to two years, the backing of such institutions will do far more for Bitcoin than the face value of any investment. Bitcoin does not necessarily need that money to survive, but the legitimacy these financial entities bring to the table could prove to be far more lucrative in the long run. With the promise of inevitable backing from both the public and private sector, it is not too uprising how much chatter there is about the threat of speculation, especially when an asset displays as little volatility as Bitcoin has.
Remember the mention of skeptics earlier? With every new and exciting investment prospect that promises hypothetical security, the fear of a speculation is always creeping up. These naysayers are not just your average day-trading investors. Back in 2013, when Bitcoin experienced a massive price surge, former Fed Chairman Alan Greenspan commented, “It’s a bubble…You really have to stretch your imagination to infer what the intrinsic value of bitcoin is.” Perhaps a little outdated, Greenspan’s point is just as fresh in the minds of economists today as it was a couple years ago. When an asset value oscillates as much as Bitcoin’s price has in the past 18 months, it is difficult to know the exact point of overvaluation, let alone put a price to its intrinsic value. Despite the commotion, many view Bitcoin as a traditional asset class (like gold), and that has led to the creation of some investment instruments like money market funds and exchange traded fund equivalents.
At the end of the day, Bitcoin’s value is measured by the markets, whether that involves the legitimization by investment banks or governments of leading economies holding Bitcoin in its reserves. At its conception, Bitcoin aimed to facilitate transactions in the cyber world by eliminating the middle man. Now, more than six years after its launch, it has joined the ranks of gold and crude oil and already props up the currencies of several large global economies. But it is far more than just the asset its classified as; it has inspired a new way of perceiving money and its function in society. Bitcoin may have been the first of its kind, but it certainly will not be the last.
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