I’ve heard this so many times and, to be honest, it could very much be true. But people who make this claim typically make it for the wrong reasons and without even understanding why the value of one bitcoin has been as high as $19,000. Let’s talk about this.
How does one determine the price of something? How do people determine the price of one bitcoin?
Price is determined by how much someone is willing to pay for something. This is also known as demand. If I’m willing to give you $10 for a pizza at your restaurant, it’s because I’m willing to spend $10 in your pizza. Whether it is because I’m really hungry, or because I’m aware that your pizza tastes delicious or whatever other reason… I’m entering a free market and I determined that your pizza is worth those $10.
You might differ from my opinion, though.
You could very much argue that your pizza is so good and unique that it’s worth $100. However, you’d probably soon realize that this is completely delusional because no one is willing to pay $100 for your pizza, regardless of how unique it is.
See where I’m going with this? I don’t care how valuable you think your pizza is. If nobody is willing to pay you $100 for it, then it’s not worth $100.
Your product, service, or brand is only worth what people are willing to pay for it. Your opinion doesn’t matter in most scenarios unless you don’t care about selling a pizza which in that case you should just close down your business, right?
This very same principle of price = demand can be applied to Bitcoin. Bitcoin is valuable because there are people out there willing to pay thousands of dollars for it. Hence, they must see something valuable in Bitcoin if they’re willing to give up so much money for it, right?
Some people like Warren Buffett or Peter Schiff argue that the only reason why people buy Bitcoin is because of the who is the greatest fool theory. That is, people buy Bitcoin with the hopes of being able to sell it a higher price to someone else, who will in turn try to sell it at a higher price to someone else and so forth and so on. They don’t buy it because they like the idea behind Bitcoin or because they truly find Bitcoin useful, but rather because they simply want to make a profit by selling it to someone else.
This idea is correct and could be applied to a big chunk of traders in the crypto space. Denying it would be denying reality. But the same thing can be said about gold, antique watches and pretty much any collectible you can think of. The only difference between a 1940 Rolex and a bitcoin is that with one you can use it as a mean of transferring wealth and the other one you can showcase your wealth. Which one of these seems more productive to you?
Let’s talk about why people could suddenly lose faith in Bitcoin and make the whole thing crash in value.
Technology
If, somehow, a new form of cryptocurrency were to come out that would totally kick ass in terms of transaction speed and costs and would make Bitcoin truly obsolete, then I could see how people would make a switch to this form of crypto. This, however, hasn’t happened so far and there are thousands of alternatives to Bitcoin today.
Note: The Bitcoin brand is extremely huge among the crypto community. Something unique and innovative would have to come out to try to compete with the Bitcoin brand. If you want to kill a $1 billion industry, you need to have something really innovative in your hands.
Evolution
Just like some alternate crypto can come out and leave Bitcoin obsolete, the same can be said about Blockchain. Thirty years ago we didn’t have the internet. 10 years ago we didn’t have the blockchain. Who knows what we’ll have in 10 years. I doubt it’ll be as powerful as Blockchain, but it could happen.
Government Interference
A lot of people come to me with this (very lame) argument about how the government could just ban Bitcoin and people would have to stop using it. Technically, this could happen. But realistically this shouldn’t happen in today’s Western democracies. Here is why (and I’m going to speak from a US. citizen standpoint).
1 – Banning Bitcoin to protect a governmental currency would be extremely anti-American. Banning something that aids the greater good of society just to preserve governmental wealth would be a massive breach of what it means to be a US. citizen. I don’t see this happening.
2 – Banning Bitcoin is not really a thing… You can’t ban Bitcoin. In order to completely ban Bitcoin you’d have to ban the internet. And banning the internet would just turn the US into some kind of North Korean regime. This isn’t going to happen. Well, let’s hope not at least. Mind voting for Andrew Yang next year and getting the Donald out? 🙏🏻
The Bitcoin Bubble
So… now that we’ve outlined a couple different ways in which Bitcoin could lose its value… Are any of these truly viable?
In my opinion, there is no reason for people to lose faith in Bitcoin unless one of the above were to become a reality.
All markets are manipulated. The stock market, the real state market, the cryptocurrency market, commodities. All of them. They are all manipulated. Big whales always have the last say in market conditions. The sooner you accept this, the better you’ll be able to sleep at night and the wiser moves you’ll be ready to make.
To wrap it up in a few words…
If you believed in Bitcoin yesterday, there’s no reason not to believe in it today. Like I said, I could understand a bearish sentiment if some new crypto or technology or something weird would have happened in society. But the truth is, Bitcoin is just as valuable today as it was yesterday. The moment something better than Bitcoin comes out we will have a comprehensive understanding of why people might want to actually sell the thing and jump on to the next big thing. But this isn’t the case. Bitcoin’s price will go up and down constantly so long as big whales control the majority of its supply. Just like it happens with stocks or gold.
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