Is Bitcoin a “Speculative Asset”?

Is Bitcoin a “Speculative Asset”?

By | 2017-12-19T22:09:55+00:00 December 16th, 2017|Tags: , , , , |

Out of all the criticisms the Bitcoin has faced, the most popular criticism that we usually see is with regards to the Bitcoin being called a “speculative bubble” that is “waiting to burst”. Despite these rumors being around for years and such rumors and doomsday scenarios time and time again being proven wrong, the fans that flame these rumors stick around. The most recent person to do was the FED Chair person Janet Yellen who called the Bitcoin a “speculative asset” and thus stating that “Bitcoin at this time plays a very small role in the payment system”, a statement most Bitcoin investors would agree with. Bitcoin does play a small role “at this time” which is the entire point of buying it now when it’s still a bargain as opposed to when it is fully adopted and worth potentially a few hundred thousand dollars, something that is completely achievable given Bitcoin’s rapid success and its ability not to just meet investor and analysts goals but go beyond them.

If Bitcoin rose this year by more than a 1000% despite it not being vastly adopted by the financial systems, one can only speculate as to how much the Bitcoin will be worth once it is fully adopted within the financial systems. Furthermore what makes the Bitcoin so precious is the same reason why diamond and gold are precious despite their little practical use, there is a limited supply of them, just like the Bitcoin.

Why it maybe perceived as a speculative asset.

The Bitcoin maybe perceived as a speculative asset due to it bearing similarities to previous speculative bubbles and one example that simply won’t go away is the “tulip speculative bubble” when the prices of tulips soared due to them being speculated to be worth a lot more than they actually were. However the Bitcoin certainly isn’t a tulip and unlike a tulip, its supply does not outstrip its demand due to their only being a limited amount of Bitcoins in circulation, again making its properties more similar to gold. Furthermore unlike a tulip or even gold for that matter, they are both extremely inconvenient to store particularly as forms of investment in their raw form. The Bitcoin can be stored safely in a key the size of a USB that costs approximately $50.

Another argument is the fact that the Bitcoin at this point is not primarily used to facilitate trade and is seen more as an investment and people will eventually want to cash out their investment and when the chunk of the community or major investors do so it could cause a ripple effect in the community and cause the price to crash. Such an argument is backed up by Bitcoin’s extreme volatility in the markets which is partially due to the Bitcoin not being backed up by a physical asset such as gold or the property market.

Despite such an argument sounding credible, the argument is self defeating and a very premature argument that the Bitcoin community partially agrees with. The entire point of buying the Bitcoin now is for investment purposes due to the Bitcoin’s price being extremely low even though it stands at roughly $16,000. When the Bitcoin is no longer seen solely for investment purposes and is adopted into financial systems within the next few years with the Bitcoin future exchanges being the most recent and possibly first major implementation. Such implementation sent the Bitcoin’s price skyrocketing to $19,000 on certain exchanges. Japan and much of Asia are planning to adopt cryptocurrencies and even Nations such as Iran are planning on using the Bitcoin directly into their digital financial infrastructure, when taking into account all these factors the price of the Bitcoin is actually still extremely cheap. Such an opinion is shared by one of PayPals’ board of directors Wences Casares who stated the Bitcoin will hit $1,000,000 within the next 5 to 10 years.

To conclude it appears both Bitcoin critics and Bitcoin enthusiasts agree on one thing, the Bitcoin is currently an investment and when looking at history, it is one spectacular investment that is propelling itself to going mainstream. However the Bitcoin through its life cycle has evolved, going from a niche currency to now a more mainstream currency and a digital gold and its hopes for the future is to become a tradeable digital gold with its place firmly in financial system. So thus making a strong case and debunking the myth of the “Bitcoin bubble”, with such myths having been around ever since its birth.