Bitcoin has a current live price of $ 0000.00, according to Coindesk. As I’m writing this article, Bitcoin currently holds 45.1% of estimated market capitalization. That is to say that it has 45% of all the value of all cryptocurrency traded combined. The value of cryptocurrency is extremely volatile, especially when news occurs. This is true of stocks as well but stocks, especially blue chip stocks, have a produced good, service or commodity attached to them. They also pay dividends based on the profits if they’re in a good overall financial position.
Bitcoin does not have an innate intrinsic value. Its value is only as much as it’s perceived to be. The real value of Bitcoin comes in the form of utility. The means of exchange from one account to another takes place without any fees unless there is an intermediary. That is to say, you can make an electronic payment without any middleman. A middleman is desirable in cases where trust has not been established. There will almost always be a fee with the use of an intermediary but there doesn’t have to be if the service operates on a model other than transactional fees. You can expect to pay intermediary fees and/or transactional fees for most web-commerce transactions with Bitcoin, albeit low. Bitcoin’s price is very volatile, and as such; commercial enterprises need to ensure that they won’t lose out on negative fluctuations in value.
One of the reasons that Bitcoin has increased in value over the years is because it has become harder to mine. It all started with a single mined block yielding 50 bitcoins and 10.5 million coins were mined with this reward amount. Then it was 25 Bitcoins rewarded per mined block and just 5.25 million coins were rewarded at this amount. As of this writing, the reward is down to 12.5 Bitcoins per block. New blocks are available approximately every 10 minutes. All miners are competing against one another to get these blocks as they become available.
It used to be that you were competing with people that just used their computer’s graphic card. Then you were competing with people that used low-powered, dedicated USB devices. Now you’re competing with large investors who are buying dedicated equipment that costs thousands of dollars. Beyond the equipment, it costs thousands of dollars to mine a single Bitcoin, just in electricity costs. I want you to imagine just how wasteful this is. Miners are what really kept the price up for so long. They would mine Bitcoin and when Bitcoin was down, they’d mine other alternative coins. People were investing heavily because the value kept increasing. Miners would trade each other for various alternative coins that kept popping up. Large investors began developing coins they could be in an advantageous position to mine. There’s all this money being thrown at what though? At the end of the day, all you are getting is some 1s and 0s on a large database. The only guarantee you receive is that it exists and belongs to your account, your virtual wallet. It is secure and I already explained the value, but without measurable value, it’s not a solid investment.
I don’t recommend investing in Bitcoin or any other alternative coin. I do, however, recommend using it as a means of exchange. It’s better than a credit card that brings fees to an exchange that only benefit the card companies. I see Bitcoin’s value continue to drop and most alternative coins value dropping until an equilibrium is reached. I don’t want to speculate but based on the estimated cost to mine a single Bitcoin with the best hardware estimated to be around $5000 just in electricity costs according to MarketWatch, but this doesn’t include the cost of hardware. It will probably drop to around this amount and then begin to rebound and continue to rise in price, business as usual.
Since the mining of Bitcoin hasn’t decreased since the recent dropoff, the miners certainly believe the price will continue to rise. What really drove the price of Bitcoin to ~$20,000 recently was the speculation and investments by wealthy individuals into the coins themselves as well as mining equipment. They were banking on the futures but we should just be setting a buying price close to the mining price. Never bank on the future price to go up unless the price to mine goes up. The problem with the cost to mine is that it goes up or down depending on how many miners there are.
The investors were getting ahead of themselves by paying such ridiculous prices. Common advice I saw with Bitcoin investors was to “HODL”. This is a meme stemming from a popular post on a Bitcointalk forum. More information about that can be found here. My advice is to liquidate your Bitcoin whenever the price goes too high but to Hodl whenever the price is ~= the mining price. No reason to ever sell if it’s below the mark. As for altcoins… nothing has really caught on yet and the potential volatility is much higher than with Bitcoin. The miners decide which cryptocurrency to mine based on how many others are mining(the difficulty) vs. how much something is trading at. This can change on a daily basis. Miners are clever individuals and they’re constantly changing the coins they mine, kind of like day traders. They’ll switch constantly, trading one coin for another, mining the newest coin today and then Bitcoin again tomorrow.
My opinion is that all roads today lead to Bitcoin. It’s established and the psychology behind it is that new investors/consumers opt for Bitcoin as it has brand recognition. Even during the recent market correction, Bitcoin gained market share whereas almost every other coin lost market share. Cryptocurrency as a whole kind of lost the wind behind the sails. I believe the wind will blow again but not without more stagnancy.
I love the idea of so many currencies but I don’t believe in using them as a primary investment. In the book I’m writing, I’ll be discussing the reality of using cryptocurrency but tied to real assets with fungibility.