Within the past three months, bitcoin’s price has moved from $4000 to over $15000. Gradually, it is getting that that level where it is now regarded as a real investment, and as a currency with great value.
But just what exactly is the value of bitcoin? If Bitcoin really is a Bubble, how do we quantify its underlying value in order to arrive at that conclusion?
What is a Bubble?
When the price of an asset diverges from the normal value (as determined by investors), then it is a bubble. This divergence may be due to stock increase, economy, company’s cash flow, or just rent collected from a property.
But the concept of a bubble can be applied to goods and assets whose value can be determined. Taking a look at bitcoin, it is decentralized, not linked to any property, and not attached to any fiat currency.
This makes it very hard to determine its real value; hence experts are not even unanimous in placing the ‘bubble’ tag on it.
The supply of bitcoin in the market, the number of transactions and the energy consumed by bitcoin miners have all been looked into in a bid to determine its real value. But none of them has been effective so far.
The Future of Bitcoin
There are a number of factors affecting the fast growth of bitcoin. It is now becoming less profitable mining it, it is gradually losing market share to other cryptocurrencies with more functionalities, government policy and taxations, and so on. But it looks like none of them will ever stop bitcoin from growing in the future.
New financial products related to bitcoin are being developed, more and more bitcoin ATMs are being installed across the globe, and nany companies are now accepting it as means of payment. So is bitcoin really a bubble? Time will tell, but judging from current events, it will only get better.
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