What makes Bitcoin so valuable? A single Bitcoin has seen a substantial increase in value. Since the cryptocurrency was initially introduced in 2008. Yet, the price has experienced significant ups and downs along the way. It reached an all-time high of approximately $60,000 in April and has been oscillating ever since.
Despite the volatility, what makes bitcoins continues to pique the curiosity of investors. Due to its track record of creating and maintaining value. Over a long period of time. However, unlike a stock, which has value because it represents a portion of a company’s ownership. Or even a bond, which represents the value of a debt that will be repaid. When the bond matures, it can be more difficult to determine the value created. By a decentralized, digital currency with such a short history of existence.
These oscillations can cause investors to be apprehensive. But they also raise the question of why Bitcoin has value in the first place in the first place.
Bitcoin and the Value of Currencies
Because people believe currencies have worth. And because societies or organizations have chosen that they will be used. As a means of exchange, currencies have value.
When gold was no longer used as a reserve currency, fiat currencies became widely accepted. (Which mandated that every dollar be backed by a holding of physical gold). Fiat currencies, such as the United States dollar, are not backed by any physical object. And only have value because a broader system or society recognizes that they do.
For example, you can go to the store with a $20 bill and spend that money on items. Time, and effort worth $20 total. However, the physical piece of paper that you use. To make your payment has no intrinsic worth.
Unlike existing currencies such as the United States dollar or the Japanese yen, Bitcoin. A cryptocurrency created and released by a pseudonymous figure by the name of Satoshi Nakomoto. Shares some characteristics of a store of value with existing currencies. Such as the United States dollar and the Japanese yen:
Bitcoin has a limited supply, with a maximum of 21 million coins available. It is impossible for there to be more than 21 million Bitcoin in existence. According to many experts, the limited supply, or scarcity, of Bitcoin. It is a significant contributor to the value of the cryptocurrency.
It is not possible to copy: Because Bitcoin is based on a distributed ledger. Also, it is impossible to counterfeit a Bitcoin coin. The blockchain keeps track of all transactions and ensures that the system. Continues to operate in accordance with the rules established. By Satoshi Nakomoto at its inception.
Bitcoin is incredibly transportable due to its small size and low cost.
What Do Investors Need to Know?
Given how often the price of Bitcoin swings, and the fact that no one can predict. Whether it will continue to gain in value or fade away, it’s a good idea to invest only. A tiny percentage of your overall assets to Bitcoin. Experts advise keeping cryptocurrency investments to less than 5 percent of your total portfolio. Same to how you would limit any other speculative investment to less than 5 percent. In addition, don’t put your money into any cryptocurrency. At the expense of other financial goals, including as saving for an emergency fund. Or planning for retirement.
Like gold, people purchase Bitcoin “not because they anticipate being able to spend it. At the store, but because they anticipate it holding its value,” according to Galen Moore. Also the director of data and indexes at cryptocurrency news outlet Coindesk. Who spoke to NextAdvisor recently about the investment.
However, Bitcoin is simply one among thousands of distinct cryptocurrencies. With Bitcoin being the most well-known. Other cryptocurrencies have distinct aspects for investors to take into account.