May 29, 2021
If you are an investor who is even remotely connected to financial
markets, the odds are that you have heard about the spectacular rise of
Bitcoin. The crypto-currency has grown from $10,000 to $17,000 in a
week. Many believe that this is a bubble. However, there are others who
believe that the rise of Bitcoin is based on genuine underlying factors.
In this article, we will have a closer look at the Bitcoin phenomenon
to determine whether its sky-high valuation is justified.To get more
news about WikiFX, you can visit wikifx.com official website.
Bitcoin: An Alternative Investment Asset
  Bitcoin comes into existence through mining. In common words, this
means that people have to lend the processing power of their computers
to process Bitcoin-related transactions. Users are then rewarded with a
Satoshi which is a smaller unit of a Bitcoin.
  The idea of a currency which can completely bypass the fiat currency
model seems fascinating to many investors. Investors are tired of the
constant inflation that government-issued currencies bring along. $1000
invested in United States dollars in 2013 would have a purchasing power
of only $900 or so. On the other hand, $1000 invested in Bitcoin in 2013
would today be worth millions in 2017! Bitcoin has by far outperformed
every central bank issued fiat currency.
  Several investors view Bitcoin as an alternative to fiat currency. The
Bitcoin algorithm has been developed to prevent inflation. The maximum
amount of Bitcoin currency has been capped at 21 million.This means that
other people must be willing to accept the currency in barter
transactions. It is therefore imperative that the currency has a value
of its own. For instance, gold can be used in a barter transaction. The
recipient of gold may decide to keep gold as it is or exchange it for
other goods and services.
  Bitcoin does not have any intrinsic value. It cannot be seen or
touched. It is only a digital currency and the only reason merchants
accept it is because they can later exchange it for Fiat currency.
  It would, therefore, be inaccurate to say that Bitcoin is money in its
right. It is just a method of using the existing money, i.e., the fiat
currency. It can be compared to financial instruments like debit cards
and credit cards which are also a medium of exchanging money. The most
important feature of Bitcoin is that it allows people to avoid
regulation. This is the real reason behind its popularity.
  Bitcoin does not serve many functions of money. It is not accepted in
the payment of taxes. It cannot be used as legal tender to discharge
debts.
Stability
  For a currency to be useful, it must have a relatively stable value.
This means that consumers must be able to exchange the same amount of
currency for the same amount of goods and services. The higher this
stability over a period of time, the better the currency is!
  Bitcoin fails this test. The value of Bitcoin is very volatile on a
day to day and even minute to minute basis. Consumers who use Bitcoin
will not be able to budget their weekly or monthly expenses given the
volatility that this cryptocurrency is subject to. It will be even more
difficult for merchants to price their goods and services in terms of
Bitcoin given the time lag between production and sales.
High Transaction Fee
  A stable currency does not try to forcibly lock in its users. However,
that is exactly what Bitcoin does. The transaction charges related to
Bitcoin are prohibitive. At the present moment, Bitcoin users have to
pay over $13 as transaction charges for every transaction! As the number
of Bitcoin mined decreases, the transaction fee is likely to increase
over the long term making matters worse.
  This means that even if they buy a cup of coffee worth $5 with
Bitcoin, they still have to pay $13 for the transaction fee. This is why
Bitcoin is not a stable currency but instead a volatile investment.
Long Processing Times
  Apart from being expensive, Bitcoin transactions are also
inconvenient. Consumers are used to instant payments and receipts. On
the other hand, Bitcoin transactions take over an hour to process. As
Bitcoin is not an organized currency, you cant really call up customer
service and check the status of the transaction. Bitcoin is not a viable
alternative to fiat currencies because of the sheer inconvenience it
causes. Trade and commerce would drastically reduce if every transaction
took over an hour to process!
Posted by: freeamfva at
07:09 AM
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