While the earliest adopters of cryptocurrencies around the world have grown used to Bitcoin’s value fluctuations since its creation in 2009, those newer to the marketplace can find themselves wondering if Bitcoin is too volatile for their needs. Since only you can decide if cryptocurrency purchases are the right financial move, understanding why Bitcoin has value in the first place is an excellent place to start when assessing its volatility and true value.
Remember, Bitcoin has benefits that go beyond the price at which it trades that are just as important to many as its financial aspects.
Bitcoin’s Blurred Lines
Americans are used to seeing the prices of stocks, bonds and mutual funds change rapidly throughout the day on Wall Street, yet a $20 bill will always be worth $20—even if inflation dilutes its purchasing power. As a cryptocurrency, Bitcoin remains in a gray area.
You see, Bitcoin is neither the traditional Wall Street investment nor a tangible currency we can hold in our hands. Instead, it blends the best aspects of each to create a more modern financial vehicle to meet the demands of the Digital Era. The language we’ve traditionally used to talk about currency and investments is now blurred to a point that it simply no longer serves us.
Scarcity and Value of Bitcoin
Bitcoin was designed to be a known quantity in a way that traditional currency could never be. For instance, the government can quite literally print new money or remove paper currency from circulation as it is deemed necessary. Conversely, Bitcoins are mined (aka added into circulation), at a relatively steady rate.
Once there are 21 million Bitcoins in circulation, mining stops and the Bitcoin supply will remain fixed. And scarce.
As a known quantity with a reliable growth rate of Bitcoins being added, the value is primarily a function of supply and demand. The price goes up when more people are interested in buying than selling, and price drops when there are fewer buyers than sellers.
Bitcoin’s Value Fluctuations
In an email Joe DiPasquale, CEO of BitBull Capital, sent to Forbes prior to an article on July 31 of this year, he stated that, “Bitcoin is currently in a break-out phase, just as it was in the first six months of 2019, when it increased in value by 189%.” Comments like these, coupled with the constant fear of missing out (FOMO) that has become prevalent in our society, may lead to a new surge of demand for Bitcoin and other cryptocurrencies.
While the pull of FOMO may bring in enough new cryptocurrency buyers that the price surges, the CEO of Argo Blockchain, Pete Wall, reminds us to temper our short-term growth expectations. According to Wall, “Predicting the price of bitcoin on an exact timeline is a fool’s errand.”
Bitcoin’s True Value
With cryptocurrency experts disagreeing on whether we’re in a new Bitcoin gold rush or just another sideways market, the only thing that remains clear is that Bitcoin’s value is likely to continue fluctuating in ways that are simply impossible to predict as we prepare to head into flu season in the midst of a pandemic and economic downturn.
What sets Bitcoin apart from many other forms of cryptocurrency is that not all cryptocurrencies were designed to be used as a currency in the traditional sense. With companies like BMW, Etsy, Microsoft and Overstock all accepting Bitcoin as payment, the funds in your digital wallet can easily be traded for the goods and services you need.
The best part? If you find yourself working in an industry where some part of your income comes to you in the form of paper money, you can stop by one of our conveniently-located Bitcoin ATMs to add funds to your digital wallet while getting rid of those potentially germ-ridden bills in your real-life wallet.