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Bitcoin powers through $ 30,000, will it last?

It's 2017 once again that Bitcoin experiences another massive surge in value. The value of the cryptocurrency has tripled since September 2020. 


Does the last move mean it deserves a spot in your wallet?


Store of value:

One of the main features of Bitcoin is that it is a store of value. This is especially important.

when the Fed is prioritizing lower rates over potential inflation for now.


and the government is handing out stimulus checks. These actions may cause the dollar to depreciate over time.


When that happens, as we saw in the 1970s, sticking to real assets can be a valuable investment strategy. Gold, other commodities, and real estate can maintain their value in times of weak currency.


Limited supply

Maybe Bitcoin could be added to that list. Bitcoin is also somewhat unique in this limited supply. In general, if the price of gold rises, gold miners spend more looking for new supplies, and this can moderate the price rise over time. Bitcoin supplies are limited regardless of price. This is the trait Bitcoin bulls prefer. When the price goes up, there is no natural way to obtain Bitcoin other than to find a willing seller.


Risks

However, there are risks as well. Bitcoin is not a productive asset. This makes them difficult to assess, and can explain large fluctuations in prices. This is in contrast to a company like Apple AAPL -0.8% or Walmart WMT 0.0%, where you can examine dividends and distributions to shareholders and determine a potential valuation. In fact, even if the market does not agree with you, you can still receive dividends from your investment while you wait for the market to emerge.


Difficult evaluation

With Bitcoin, just as it is with gold, things are hard to pin down. The value of the asset is not determined by the monetary return. However, this cuts both directions, critics can argue that the valuation is much lower, but there is also room for a higher valuation as well since there is no clear basis for valuing Bitcoin.


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In fact, as Bitcoin rises, the interest it is attracting to it may further improve returns as buying increases. This could be beneficial because few institutional investors own Bitcoin in physical size at this point.


2017 again

It is important to remember, however, that price volatility has two sides. In 2017, Bitcoin jumped nearly twenty times from its lows of that year. However, the gains were short-lived, and then the price dropped 85% from the peak over the next year, if I were lucky enough to buy at that peak. Of course, Bitcoin still has an impressive upward trajectory, but volatility along the way has been in turmoil.


So those who are enthusiastic about bitcoin's epic price hike should understand that major lows were part of its history as well. However, the current rally and the potential weakening of the dollar over the coming years may continue to attract Bitcoin more interest from ordinary investors.


The fact that Bitcoin is fully owned by many investors could constitute a long-term bull case for the cryptocurrency, although it is very similar to gold as it is among the hardest assets to assess where its value really lies.

Source : forbes

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