Investing mania through the centuries ranged from tulips to technology stocks to housing. Is Bitcoin different?
Bitcoin (BTC) started the year on a strong note and kept up with the momentum going stronger. It created global mania till the year-end. Within a year, it has given astronomical gains with returns on investment of 1300 percent. Bitcoin a crypto currency was the fastest growing asset class, with the market capitalization of about 180 billion USD.
Comparing the market capitalization with other asset class it is still very small and has a larger space to grow. In percentage terms, it is just 2.4 % of coins and banknotes, 2.3% of the gold market, 0.25 % of global stocks, 0.19% of the money supply, 0.083% of real estate market and 0.033% of the derivative market.
What made Bitcoin rise?
Crypto currency is been viewed as a store of value by many people. Just as if it is Gold 2.0. The constant rally of Bitcoin has brought it in the form of futures contracts on Wall Street.
The mania can be understood by comparing it with downloads of Snapchat or Instagram. Coinbase was downloaded nearly twice than them. Many of the downloaders were first-time investors.
Coinbase is service which is easy to use. People can exchange dollars for Bitcoin. This free application was at the top of Apple App Store chart. Because of high traffic users had trouble logging in. It was a spectacular rise for the app which was at above 300th ranking a month ago reaching the top.
Bitcoin was also one of the top searches on Google. It can be seen the rise was in tandem with the value of Bitcoin rise. This shows the mania that surrounded Bitcoin throughout 2017.
It is hard to determine Bitcoin intrinsic value because it is not an asset where the expected value of future cash flow can be determined. But it is surely a medium of exchange.
Importance of Bitcoin can be judged by the fact that trade of futures contract started on Chicago Options Exchange. On the first trading session itself, 500 contracts were traded. Nasdaq is also pondering over trade in these future contracts.
Because of its constant rising value Bitcoins are here to stay. Since it does not come under the jurisdiction of any government control, it is inflation proof. Most of the economies of the world are in unstable conditions because of internal aggression or unfavourable political climate. Bitcoin is boundary-less cryptocurrency. It can be exchanged for other currency. These factors favour the citizens of the unstable countries towards Bitcoin.
More and more merchants have started accepting Bitcoin as a medium of exchange for their goods/services. This increases the free and easy flow of currency from one part of the globe to another.