Given Bitcoin’s recent record-breaking breakthroughs, many predict that the cryptocurrency will reach $ 100,000 or more. These forecasts are often based on current trends and are made by people with this logic who believe that the price has been up until now, and then it should go up.
Of course, there is also technical analysis and charts. Many use the patterns on the charts to predict the future of currency currencies. If you are a little familiar with financial markets, you must have heard terms such as technical analysis, resistance area, support, indicator and fundamental analysis.
In this article, we are going to address the question of whether bitcoin is of fundamental value.
Calculating the fundamental value
“Core value” is one of the traditional financial terms, which means the value that is created based on the return on investment of an asset. Consider an apple tree. For an investor, the fundamental value of this tree is in the apples that bear fruit and are the product of this tree.
In the case of corporate stocks, the core value is the return on investment to the investor on a per-share basis. A standard criterion common among investors is the price-to-earnings ratio. In a more complete view, it should be said that the fundamental value reflects the profit that the shareholder or investor will get from the purchase of the above share.
Gold is also of fundamental value, based on its use as jewelry, in dentistry, or in the manufacture of electronic products. But this fundamental value is not the reason most people buy this precious metal.
Fundamental value in the world of cryptocurrencies
National currencies are very different from cryptocurrencies. The fundamental value of national currencies depends on their reliability and acceptability as a currency. In the past, coins were made of precious metals such as gold and silver; Because it was possible to melt them and turn them into a precious metal. But this is no longer the case for Fiat currencies (government-backed currencies), and their value depends on the extent to which people trust a currency to be accepted by others.
Most cryptocurrencies, such as Bitcoin, Ether and Dodge Coin, are considered private Fiat currencies. These currencies have no corresponding assets or profits, and these factors make it difficult to calculate their underlying value.
In September, analysts at Britain’s Standard Chartered Bank reported that bitcoin could reach $ 100,000 by the end of 2021. “The future of bitcoin,” said Jeffrey Kendrick, head of the bank’s cryptocurrency research team.
As a form of currency, bitcoin can become a permanent one-on-one payment method for a world without a bank account and a cashless future.
Mr. Kendrick’s prediction is theoretically plausible. About 1.7 billion people worldwide do not have access to banking services, but Bitcoin has been the future payment method since its inception in 2008. Of course, little progress has been made since then.
There are at least two important factors against this popular currency code; The first is that payments have to be processed by computers, and the second, which is more difficult, is the price fluctuation of this currency.
Digital currencies that can have a fixed value will have a better chance of becoming a payment instrument. These types of currencies include stable coins, projects such as Diem Meta (formerly Facebook) and digital currencies of the Central Bank of some countries, some of which are currently used in the economies of the Caribbean.
So far, Tesla has been the only major company to adopt Bitcoin as a payment method. The only country that has accepted bitcoin as its official currency is El Salvador, which also uses the US dollar. Of course, the economic benefits behind the decision of El Salvador President Najib Bukla are not clear, but the country’s laws forcing businesses to accept bitcoin have led to protests.
Bitcoin as digital gold
If Bitcoin as a common payment method has no real value, can it be viewed as a valuable resource, like digital gold? Bitcoin has the advantage over most altcoins (other cryptocurrencies) that it is very popular among the people and beyond that, like gold, it has limited reserves.
One of the tools that cryptocurrency fans use to compare bitcoin to gold is called the Stock-to-flow model. In this method, it is said about the stability of the value of gold that the available stock of gold is 60 times more than the amount that is extracted every year. The existing stock of bitcoins is 50 times more than the coins that are mined annually.
This method cannot explain why the price of Bitcoin has halved at some point this year. Even this model has no theoretical basis in economics; Prices do not only depend on the amount of inventories available, but there are many other factors involved.
Some bitcoin proponents predict a higher price for this currency, assuming that capital managers will invest an arbitrary share of, say, 5% of their assets in bitcoin. But these kinds of predictions assume that Bitcoin, as the largest and most well-known cryptocurrency, will continue to dominate the cryptocurrency market; If there is no guarantee for the realization of this view. Especially considering that there is no limit to the number of altcoins.
Bankcard, a credit card company, controlled 90% of the Australian credit card market in the early 1980s, but ended in 2006 with the rise of Visa, MasterCard and the like.
Remember the MySpace social network? Prior to 2008, it was the largest social network, but declined as Facebook grew in popularity. Therefore, there is no guarantee that Bitcoin will remain the cryptocurrency of the market.
Take another look
In September, The Economist argued that Bitcoin is now a diversion from the future of decentralized assets, despite competitors such as Ether (Atrium’s blockchain cryptocurrency), which has grown significantly.
There are similarities between the bitcoin bubble and the .com bubble in the first decade of the new century; Both grew up with optimistic predictions about new technologies and, of course, human greed.
Just as a few stars like Amazon emerged from the .com bubble, some applications of blockchain technology under the Bitcoin network may have had sustained use, but the Bitcoin currency code is unlikely to be one of them.