At first, no one knew about it. Then everyone thought that only criminals used it. After a time, everyone decided that it was out of the way. But currently, one Bitcoin costs more than $60K, and people buy high-end hardware to mine at least some bitcoins. Bitcoin is also a very unusual thing.
Today, we will give you answers to the most popular questions about digital gold. Let’s get started!
Is It Possible to Calculate the Value of Bitcoin?
The simple answer is no, you can’t. Traditional assets such as stocks, bonds, or real estate have a rate of return that can be used to calculate a reasonable cost relative to the cost of other assets.
You can calculate the price of a bond by its yield. The reasonable value of a share is based on the amount of future profit that the entity concerned would have received. In turn, you can calculate the real estate value based on the rental income received.
For assets that do not have a rate of return, it is more difficult to calculate a reasonable value. Products do not have an internal rate of return, but people still have a good idea of the supply and demand for these products. Given economic growth predictions, those who predict oil prices know how much oil can be produced worldwide and the global demand.
Why Did the Bitcoin Price Rise Sharply in 2020?
The price of Bitcoin in 2020 has grown by 360%, and in 2021 it continues to set new cost records.
The financial market recovery from the sharp decrease at the start of the Covid-19 crisis in the spring of 2020 has been broadly stable. It was defined both by the stable stimulus measures introduced by the world’s states to reduce the pandemic’s impact and by the central banks, which financed their stimulus measures by printing new money.
Record low interest rates and bond yields, coupled with growing optimism, have forced many investors to look for assets with higher returns, despite the higher associated risks.
Bitcoin has benefited both from the greater willingness of investors to take risks and from their fears that the actions of central banks printing new money will reduce the value of traditional currencies.
However, other practical factors have emerged as well. Large and stable payment companies such as PayPal have started to allow their customers to make payments with bitcoins, thus increasing public interest in cryptocurrency and making it easier to acquire it.
What Makes Bitcoin Different from Gold?
It is more difficult to determine the price of a metal such as gold, which has limited industrial use. The value of gold is set primarily by using it as a unit of measure to determine the price of other assets. Gold is not only metal and a commodity. It is mainly a currency. Currency should be rare, durable, easily transportable, difficult to counterfeit, and its price should be relatively stable over time.
What actually determines the price of gold? Simple answer: a general assessment of the prospects of other assets by investors. For example, if investors are worried about other assets becoming too expensive, they will try to sell some of their ‘overvalued’ assets and buy more gold instead.
Increased financial or political risks tend to drive up the price of gold as they make investors think other assets may be too expensive given the uncertainty of the situation. If the market decides that the value of common currencies will decrease because central banks are printing too much new money, then the price of gold will rise.
Bitcoin gets its value in this way, and it actually acts as a digital version of physical gold.
We can draw parallels to gold in various ways, including ease of transportation, difficulty with counterfeiting, divisibility, and digital mining needed to get new bitcoins.
When discussing the calculation of a reasonable value, only the 12-year history of Bitcoin is considered a disadvantage, while we have been using gold as a currency for thousands of years.
Will Bitcoin Replace Gold?
Bitcoin’s short history makes it difficult to predict its future role, which is crucial in determining the price. All price predictions should be based on assumptions about how widely and often Bitcoin is used. Let us consider this with a hypothetical example. Let’s assume that in the future, Bitcoin will completely replace gold as a measure of value.
If today the value of all the gold in the world was divided by the bitcoins available on the market, then the price of one Bitcoin would be about $630,000. It is clear that this assumption is not particularly justified. Assuming that many countries would instead choose to ban Bitcoin or regulate cryptocurrencies to make them much less attractive, we would have the opposite effect on price.
Who Owns Bitcoins?
Information about how many bitcoins are in each of the 200 million ‘electronic safes’ created during the existence of this cryptocurrency is publicly available, just like all historical transactions that were made between all wallets.
However, there are no registers as to who owns each wallet. In addition, anyone can create one or more crypto wallets anonymously.
One person can own many wallets, but cryptocurrency exchanges can put the bitcoins of all customers into one wallet. This fact makes it difficult to calculate how many people own bitcoins.
According to a study published in the spring of 2019, 11% of Americans own Bitcoin or some other cryptocurrency. Other calculations, done in different ways, indicate that roughly 100 million people own bitcoins. Thus, we are still talking about less than 1.5% of the world’s inhabitants.
Do Criminals Use Bitcoins?
Bitcoin and other cryptocurrencies have made the life of criminals easier. While Bitcoin transactions can be tracked, it is both a difficult and expensive process. In addition, it’s impossible to tack transactions with some cryptocurrencies. It is much easier for criminals to use cryptocurrencies than cash.
Although cryptocurrencies are used in criminal activities, they account for a tiny fraction of all transactions.
According to the blockchain analysis company Chainalysis, 0.34% of total Bitcoin flows in 2020 could be associated with known illegal services (a 2.1% decrease by 2019). However, there is a serious gap in these statistics, as Chainalysis is unable to identify flows arising from activities such as money laundering and tax evasion.
Are Cryptocurrencies Regulated?
The issue of the need to regulate cryptocurrencies is becoming relevant. Since Bitcoin was created as a protest against the financial system, any kind of regulation is considered a threat by many enthusiasts. At the same time, cryptocurrency trading needs to be regulated if the market continues to grow, eventually becoming an integral part of the financial system.
This issue is also becoming more and more relevant, given the rapidly growing trend to circulate stablecoins. Many more people can use this cryptocurrency, and thus, it can threaten financial stability in the long term. In 2020, the European Union came up with a proposal to introduce a single EU cryptocurrency market regulation.
Conclusion
Today, we have presented our selection of the most frequently asked questions about Bitcoin. We hope you have found it useful!
If you’re interested in buying BTC, you should definitely think about doing this at Switchere. On our platform, you have an opportunity to buy BTC in the fastest and most convenient way. Moreover, we offer some surprising bonuses! Users of our platform enjoy a 0% service fee for the first order.
What other interesting facts about Bitcoin do you know? Feel free to share them in the comments below!
Leave a Reply