What is Bitcoin?
Bitcoin was launched in 2009 as a new currency where one makes exchanges with no middle-man (i.e. bank or broker), no fees and, anonymously. The units (coins) are bought and then exchanged as a form of payment. The value of these units has increased almost 1000% over the last year and are now worth $6100.
What is the fuss?
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Does Bitcoin (Cryptocurrencies) have a future?
The key is trust behind a new currency. Who will step in when trust between market participants and liquidity evaporates? The financial crisis of 2008 showed the importance of authorities stepping in to put out fires and that financial activities need to be regulated.
Proponents of Bitcoin say that having no government or third-party involvement is an attraction. Transactions are protected by the crypto technology. But they could be banned as international financial tracking continues to increase.
A new form of transacting does appear feasible in the quickly evolving internet world. This is being supported by the new “block-chain” technology, which enables direct transacting between parties without a middle man (bank or broker).
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The massive increase in value!! How is it justified?
The greed of a financial instrument rocketing up is the main reason for Bitcoin’s attention. So why is it shooting up and what is a fair value for a Bitcoin? The latter is most perplexing for the investment market.
A new concept or technology that is compelling will create hype. Think the IT bubble in 1999 and more recently social media companies (Facebook, Google, Tencent). It becomes a must-have at any price, until the bubble bursts.
No one can ascribe a logical, fair and intrinsic value for Bitcoin. It produces no income. But it does currently have a limited number of units (21m) in supply. However, there are many other, cryptocurrencies such as PonziCoin and Mysterium. Also, its blockchain technology is new, but does not appear to be unique.
Our Conclusion
We expect cryptocurrencies to find a place in the evolving internet world, which may include a Bitcoin but without a volatile value as we see today. These rocketing values will be a passing phase, which is likely to burn a lot of investor’s fingers when the bubble bursts.
The bottom line is, invest in what you understand and to what you can ascribe a realistic valuation. Bitcoin is not something we would recommend investing in.