Bitcoin is a mystery to many. As the currency gains popularity, the enigma surrounding it deepens. Financial analysts, asset managers and tech geniuses are confused, yet they continue to praise it.
A number of serious economists and computer techs have wondered what anyone sees in the currency. Sure, it is an innovative way of transferring money. Yes, it is secure and impossible to hack. Of course, it offers anonymity. Free from government control is an added bonus. But do all these traits justify the high valuation?
Some skeptics disagree. Many had predicted the downfall of the coin during 2017 and kept repeating that it would go bust. People have been saying that it is in a speculative bubble. Yet Bitcoin mania continues to captivate more and more imaginations.
Both skeptics and supporters use a more measures tone now. Even the naysayers eventually come around looking for ways to trade in and profit off the success of Bitcoin. Take the case of JPMorgan chief who called it a scam last year and then chose to allow JPMorgan customers futures trading in Bitcoin.
So what about the people who joined the bandwagon earlier and are already in possession of a few thousand Bitcoins? Most of them believe the coin will raise even higher and hit $100,000 in a few years. They are in no hurry to sell and cash out right now even when Bitcoin crashes. These people are referred to as hodl, ‘holding on for dear life’ investors. These people will just not sell their holdings even if the coin drops to zero.
When we have a market with no one looking to sell, the price can go through the roof and that is exactly the case with Bitcoin.
Bitcoin May Become a Symbol of Art
Some analysts, trying to solve this Bitcoin riddle have come up with an interesting theory. They assert that Bitcoin is no longer seen as a transactional currency but more of as a form of art which is why so many celebrities are obsessed with it. To them, it is like Da Vinci’s ‘Mona Lisa’ or ‘The Last Supper’. What is the intrinsic value of these art pieces? Or any piece of art?
No one can say for sure. The Mona Lisa for instance is currently estimated at a value of $790 million. Three quarters of a billion dollars for some ancient, faded portrait of a woman who isn’t even that incredible to behold.
Yet that is the value it is estimated at. Salvator Mundi, another piece by Da Vinci recently sold at an auction for $405 million. Imagine paying half a million dollars for a painting that you can’t even put on a display wall out of fear that it might get stolen.
The value of a piece of art is not based on the costs that the artist paid for creating it. The value of a piece of art is based on what someone else is willing to pay for it. That is its intrinsic value.
You can have the world’s best diamond, but if no one is willing to pay even $10 for it, it is worthless. On the other hand, if someone is willing to pay $10,000 for a grain of sand, then that is what it is worth.
However, diamonds are limited while sand is everywhere. Bitcoin is limited to 21 million, like diamonds. People have estimated that a quarter of all Bitcoins ever mined are already lost forever, with more and more being lost each day due to people forgetting passwords to their hard disks.
Bitcoin will become a piece of art as it becomes rarer and rarer with time. Like an old coin from the sixteenth century that can fetch thousands at an auction, Bitcoin might very well reach the $100,000 figure one day.
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