During the pandemic and into 2021, bitcoin experienced a significant boom period, rising to over £44,000 per coin. This dropped precipitously from May onwards, before yo-yoing back up in 2022 to over £48,000, before, again, dropping down to below £30,000. This was mirrored by practically all other cryptocurrencies, with newer and smaller coins experiencing even wilder swings.
The toing and froing of the crypto markets understandably has raised question marks over whether cryptocurrencies can manage to attain the lofty status its proponents argue for. Namely, a long-term asset class akin to gold, or the basis of a global currency. In this article, we explore whether either of these aims will come true.
Will Bitcoin become a global currency or asset?
Multiple financial bigwigs including Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powell believe it’s only a matter of time until Bitcoin replaces fiat currencies across the globe and functions in a similar manner to gold. But beyond the bluster, how likely is this?
First, currencies. These come into being by ticking certain boxes. Principally, they need to be a good medium of exchange – people trust in them enough to trade them for goods and services.
This trust can be earned several ways. First, is the currency stable enough that businesses can price their products and services without needing to reassess pricing in line with volatile valuations. Right now, Bitcoin almost certainly fails the stability test, as its headline-grabbing prices attest.
Next, can the currency be easily used? This comes down to its ability to scale, how easily it’s used, and whether it’s regulated. Today, Bitcoin certainly checks the scale box, and is moving towards ease of usability, though it is certainly lacking on the regulation front – every country has different crypto rules.
The ability to store value is a key metric when it comes to assessing both currencies and assets. Obviously, Bitcoin has value – increasing and decreasing exponentially.
And while the prospect of ‘hark forks’ (changes to the blockchain’s protocol that results in two different types, the old and new) does strike fear into investors who might see a new, dominant coin emerge, Bitcoin does appear to have the PR edge over competitors – for now, at least.
All in all, this means cryptocurrencies are unlikely to become global currencies any time soon. They could function as assets, however.
Bitcoin as a special asset class
Due to its current high volatility, cryptocurrency is ineffective as a hedge against inflation – itself wracking the global economy right now. But it can be used as an alternative asset for an economy in crisis.
Countries with economic sanctions and inflationary fiat currencies, such as Ukraine, Russia, Zimbabwe, Lebanon, Venezuela, and others, can use Bitcoin and other cryptocurrencies as an alternative component of the supply of financial resources. If these countries invest, there will consequently be a high potential and attractive rise in cryptocurrency’s volatility in the Forex market.
What is the best way to invest in Bitcoin?
Investing in Bitcoin has traditionally been conducted by purchasing coins through coin exchanges, holding onto them, then selling when the price rises. This isn’t the only means of investing through – spread betting can be a good way to make money while volatility within cryptocurrencies is so high.
This form of speculation involves betting on the price of a cryptocurrency rising or falling over a set period. If the currency performs in the given direction, then you are paid a price quoted by the broker.
If you are considering spread betting, make sure you fully understand the product though, as there is the potential for losing money.
Bitcoin and cryptocurrencies aren’t going away, but will they rise to the level of currencies and long-term assets? Let us know your thoughts and opinions in the comments section.
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