Bitcoin is gaining popularity as an investment instrument and medium of monetary exchange, but what could be exciting for Bitcoin fans is the claim that the crypto-currency could soon be worth $100,000 per BTC.
Bitcoin has risen in popularity among early technology adopters, investors and the press. While the crypto-currency gained bad publicity from its involvement in black market online service Silk Road in mid-2013, this also fueled the viability of the currency as an anonymous medium of exchange. Even Federal Reserve Chairman Ben Bernanke says Bitcoin may hold promise as a financial instrument.
There are questions as to the viability of Bitcoin as an investment instrument, however. London-based economist John Greenwod says Bitcoin might not be effective as a currency, as it does not provide a long-term store of value, which is necessary in settlement of contractual obligations.
True enough, the value of Bitcoin is volatile, and the conversion rate is severely affected by demand, supply, as well as relevant news affecting Bitcoin usage. For instance, the Chinese ban on Bitcoin exchange resulted in a crash, although the crypto-currency’s present value (about $840:BTC) is deemed to be in line with more realistic expectations than the $1,000 plus valuation near end-2013.
What could be exciting is the claim that the value of BTC could shoot up to $100,000 each. According to Chris Dixon, partner at Silicon Valley venture capital firm Andressen Horowitz, Bitcoin has the potential to become the leading means of making payments online. If this is the case, then a single Bitcoin could be worth more than its present value. “I think [a bitcoin] could be easily worth $100,000,” Dixon says.
It can be noted that the virtual currency was worth $13:BTC just a year ago. Today’s $840 valuation is a 6,461% increase in value.
While there are about 12.2 million BTC in circulation (a value of of about $10.3 billion today), Bitcoins can be mined by solving complex algorithms using specialized computers. The maximum number of Bitcoins could be reached by the turn of this century, which means the laws of supply and demand, plus potential fees charged by miners, would make each coin more valuable by that time.
Dixon does admit that Bitcoin is currently a very speculative investment. He even likens it to the domain name business, which was underestimated in the early 1990s, but suddenly surged in value, with single domain names selling for thousands or even millions of dollars.
Still, Bitcoin may hold promise as an investment instrument, at least with regard to the applications and companies that offer Bitcoin-related services. This December Andressen Horowitz, itself, invested $25 million in Coinbase, a San Francisco-based startup that specializes in Bitcoin payments and exchange. During the same period, Horizons Ventures had also put in an investment in BitPay, yet another Bitcoin payment processor.
The argument is that Bitcoin does have potential as a currency of value. The question now is whether it has long-term viability, or if it’s simply a bubble waiting to burst.
Source: International Business Times / Image credit: AP