Bitcoin is one of the most popular topics on the internet and a leading subject of interest in the investment world. The cryptocurrency rose in value from a little less than $1,000 to somewhere above $19,000 in 2017 alone.
That’s a substantial spike in value for a single financial year. It could explain why dozens of professional traders have crowded into the bitcoin business and hundreds of hedge funds now exist that are focused solely on digital assets like bitcoin.
But, does this explain why everyone is considering bitcoin as an investment option all of a sudden? Probably not. Here are three reasons behind the sudden interest in the digital currency.
- Bitcoin is a huge speculative bubble
Bitcoin has shown the potential to rise in value and people are making bets on the possibility of this value going up even higher in the coming years. Given a situation where bitcoin will be worth a lot more in the future, those who invest in the blockchain technology today will be making money with Bitcoin as the price continues to rise.
Besides, the valuation of bitcoin is not tethered to any intrinsic value. Bitcoin isn’t a coin in the literal sense. It is a computer code that exists on the internet based on what is referred to as blockchain, a distributed ledger that, unlike government-issued currencies, is not operated by any centralized authority. As such, there is no limit to just how high the value can go.
- Increased recognition and acceptance by regulators and governments
The actions of regulators inherently determine the viability of any trade – and the same is true with bitcoin. One case in point is when a correction wiped off nearly $4 billion of the value of bitcoin in May 2017, leading to a whopping 19 percent price fall from its record high at the time.
While Bitcoin initially faced a great deal of obstacles including sanctions or illegalization by some countries, several governments have recently soft pedaled on the subject, or come out flat in support of the cryptocurrency.
Japan’s recent recognition or bitcoin as a legal method of payment and Russia’s U-turn to accept the digital currency are just some of the few notable cases that have played out significantly, contributing to the popularity of this alternative mode of payment. This international acceptance of bitcoin has been a major boon toward its growth.
- Problems with traditional markets
Major events like the US presidential election and the Brexit vote have created critical economic and global political uncertainty for investors. This has caused many of them to become wary of the traditional bond and stock markets to some extent.
As these markets become shaken by uncertainties of this magnitude, bitcoin and the wider lockchain technology is representing a different type of asset class that is promising the much-needed difference. Investing is about taking calculated risks, and since bitcoin is promising plausible gains, it’s only logical that everyone wants in on it.
Whether or not investors are right to jump aboard the bitcoin bandwagon remains to be seen. Nonetheless, there is good potential in the crypto world and it is only commonsensical to try it out.