If you know anything at all about cryptocurrency, it likely involves Bitcoin, the original concept coin. But whilst most people think of Bitcoin as a currency, like the U.S. Dollar, it’s no longer really used like that any more. Certainly, there are some vendors that accept Bitcoin (and other cryptocurrencies) as payment for goods or services, but these days there is a significant problem with these transactions – Bitcoin’s volatility.
Bitcoin Price History
At the time of writing, one Bitcoin is worth US$55,790. Two hours ago, it was US$53,700 (-4%); two days ago it was US$61,500 (+10%); and two weeks ago it was US$43,500 (-30%).
Since its inception in 2008, the value of Bitcoin has been on the move. In 2010, the first known commercial transaction using Bitcoin occurred when programmer Laszlo Hanyecz bought two Papa John’s pizzas for ₿10,000. The following table shows the value of Bitcoin on January 1st of each year:
|Year||Bitcoin Price (USD)||Change (USD)||Year-over-year (%)|
Today, March 16th, Bitcoin is up 150% since January 1st. That’s 75 days. It’s safe to say, Bitcoin is no longer used to buy pizzas.
Bitcoin is the New Gold
Like Gold, Bitcoin is now primarily a store of value. It was never intended to be here; Bitcoin was originally designed as digital currency, but high transaction fees and changes in expectation over time, have transformed its perception into an asset more akin to gold and other asset stores. That is, it’s now an investment, not actually for spending directly, and has limited other direct uses.
Bitcoin is becoming mainstream in this regard, and as it becomes accepted in the market, market confidence has strengthened. We are unlikely to see 71% of its value wiped in a single year (as between Jan 1st 2018 and Jan 1st 2019) because of just how many institutional investors that are now onboard. For example, last month, Telsa disclosed a $1.5 billion investment in Bitcoin in its annual report filed with the Securities and Exchange Commission. Couple that with a theoretical maximum number of 21 million coins, 18.5 million of which have already been mined, and we have that other factor which leads to significantly increased value – scarcity. Last month, the Bitcoin market cap reached $1 trillion dollars for the first time.
So why are we still seeing volatility? With such massive increases in price in a relatively small amount of time, investors are locking in profits, only to have the next round of investors enter the market. So where is this heads?
Bitcoin Price Predictions
Bitcoin’s market cap has doubled since the start of the year, from $500 million to $1 trillion in February. “Bitcoin is going to flip gold, and it’s going to subsume the entire gold market cap,” MicroStrategy CEO Michael Saylor told CNBC in February, announcing it had added a further $1 billion worth of Bitcoin to its already sizable holdings. The value of the gold market is put at around $12 trillion.
“Then [Bitcoin is] going to subsume negative-yielding sovereign debt and other monetary indexes until it grows to $100 trillion,” Saylor said, adding he expected the Bitcoin price to become less volatile as it climbed over $10 trillion.
However, Saylor’s Bitcoin price prediction of $100 trillion is bullish even for some of Bitcoin’s biggest supporters.
“I’ve held a price target of $100,000 per Bitcoin by the end of 2021 since I publicly wrote about it in 2019,” says Anthony Pompliano, partner at digital asset hedge fund Morgan Creek Digital, speaking over email. “[I’m] sticking with that, yet somehow have become the most conservative person in the room.”
Pompliano’s Bitcoin price prediction is shared by hedge fund manager Anthony Scaramucci, whose infamous 2017 tenure as Donald Trump’s communications director lasted just 11 days. Earlier this month, Scaramucci said Bitcoin could “easily trade” at $100,000 in the next 12 months.
Some think that interest in Bitcoin from Wall Street and major corporations will trigger fresh retail demand for Bitcoin.
“With the caveats that past performance is not an indication of future results, and that Bitcoin price could come down as far as it goes up, in my view a realistic peak price between now and the end of 2021 is in the $150,000-$300,000 range,” says Cory Klippsten, the chief executive of Bitcoin-buying app Swan Bitcoin, speaking via Telegram.
However, other more skeptical investors don’t share the bitcoin community’s bullish outlook.
Charlie Munger, vice chairman of Warren Buffett’s investment company Berkshire Hathaway, this week warned he doesn’t see bitcoin making it as either a payment system or as “digital gold.”
“I don’t think bitcoin is going to end up the medium of exchange for the world,” Munger said during an interview at the Daily Journal’s annual shareholder meeting.
“It’s too volatile to serve well as a medium of exchange. And it’s really kind of an artificial substitute for gold. And since I never buy any gold, I never buy any bitcoin.”