Bitcoin: it is the cryptocurrency that has made astonishing grounds, utilised unparalleled block chain technology and developed a powerful reputation as a worthwhile investment. Some investors have made profits in the many hundreds of thousands through the currency’s doubling in value in only the last few months. Forecasts say that bitcoin should be trading at an astronomical $10,000 per bitcoin within the week. But is bitcoin too good to be true or is it really worthy of investment?
Unfortunately, bitcoin is in essence too good to be true. Without bitcoin being governed by any central bank, bitcoin’s future is that of trepidation: there is the potential for its value to collapse without notice. The boss of one of the most successful investment banks, JP Morgan, has presented his disregard for the digital currency. Jamie Dimon has said that not only is bitcoin a “fraud” but it also only fit for “drug dealers and murderers”. The basis of this is because of bitcoin being a currency not adopted by any central bank, meaning that it has no intrinsic value.
Despite this, with value growth of the digital currency so strong, many speculators just regard this information as making bitcoin a riskier trade – not necessarily one they shouldn’t make. With the potential for mammoth profits it is inevitable that a warning from Jamie Dimon is not going to stop people buying the cryptocurrency – even his daughter has invested in bitcoin? However, one of the prominent reasons for bitcoin’s recent explosion is due to the revelation of the significance of the technology behind bitcoin: block chain. Block chain is a digital network that securely holds the information of millions of online transactions. It is thought by many industry experts to be the safest data protection method currently developed and in use. With further developments in block chain and businesses wanting to ever increase data protection, block chain technology is potentially transformative. Effectively, when you invest in bitcoin you are investing in the revolutionary block chain technology. However, and most importantly, bitcoin is soon to be no longer the sole user of block chain, with numerous firms already saying that they are investing in research and development in the technology to aid their own data protection. The concept of investing in bitcoin to invest in block chain technology will hence be invalidated – there will be many other options, primarily equities in businesses developing block chain technology, that will remove the desirability and consequently value of bitcoin. This further increases the chances of a collapse in the value of bitcoin in the very near future, making it an ever more deleterious investment prospect.
To add to the many issues challenging bitcoin’s future as an investor’s paradise, many countries have already banned the cryptocurrency. China is one such country that has made this move. Bitcoin simply does not offer governments and central banks the power they need to manage economies effectively due to bitcoin being ungoverned. For example, in case of booming economic growth and high expenditure many governments would be likely to be facing an economy with high inflation. The general protocol is to employ monetary policy and fiscal measures to reduce consumer spending and in turn inflation. However, if the country has its usual currency as well as bitcoin circulating in the economy, the effectiveness of these measures will be limited (they will be diluted because of the uncontrollable spending using bitcoin). Furthermore, if bitcoin becomes the more prominent currency then it will be completely at the mercy of the markets and consequently governments will have no control on its value etc. – this could lead to devastating inflation levels, recessions and other macroeconomic issues that could greatly harm economies. China, foreseeing this potential issue, banned the commercial use of bitcoin and its exchange, removing its potential as a common currency and consequently maintaining the government’s power over consumption and the economy. However, this is yet another reason not to invest in bitcoin: if countries are going to prohibit the currency then bitcoin will lose its value rapidly if the trend becomes global, being catastrophic to those who have potentially invested millions in the currency.
Bitcoin has made headlines and made many rich, but being labelled a “fraud” by the greatest industry experts, its future is dismal. The consensus is that ultimately its value will collapse at some point soon. There may, therefore, still be time to make profit on the currency, but with the collapse in value unpredictable it is an extremely deleterious investment to go ahead with. The eventual fall in value will be dramatic and painful to the holding bitcoins. Do not invest in bitcoin if you cannot do without the money – you never know when bitcoin will collapse and you will have to do without that money!