February 13, 2018

Question:Why Bitcoin has its own value? How can a digital currency cost this much?

Reasons why Bitcoin Bubble can really happen in the near future.


Who decides the value of Bitcoin?

For some people, it can be a strange thing for Bitcoins to have values if they are only just created online from nowhere.

Bitcoins have value because they are useful as a form of money.

As with all currency, bitcoin’s value comes only and directly from people willing to accept them as payment.

If there is no one who believe that Bitcoin is useful or accept them as currency, Bitcoin will lose its value completely.

Finally, Bitcoin’s market price is now balanced by “demand and supply” of its users.

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Market experts worry Bitcoin Bubble

At the moment, no one has the answer to the question.

Some believe that the market price will eventually stabilized and some also believe that the price will fall to zero.

Its high market volatility comes from the thin liquidity, but many investors believe that it should also calm down once there are more participants to this market.

Is Bitcoin market bubble?

The drop caused worries, as a number of analysts rushed to compare bitcoin’s course with the dot-com bubble, as its fall neared similar levels.

A comparison was also made to other “similaritie”s and was extended to arbitrary conclusions, like as the internet did not go away after the dot-com bubble, so block chain will not go away after a bitcoin bubble.

At this point, we would like to state that we do not share these views and consider each case by its own merits, as there are also a number of differences between the two.

Also in our opinion, the burst of the dot-com bubble does necessarily constitute comparable levels to bitcoin, meaning that bitcoin may very well rebound or drop even further in the future.

Read other Columns about Crypto

Will Cryptocurrency be accepted by Banks?

However, if one point could be a take away from the whole argumentation, that would be the normalization of Bitcoin as an investment asset.

Signs of such a normalization were given once again yesterday, as the Swiss Crypto market may gain full access to regular banking services until the end of December, this year.

The news seem to have sparked new hopes and optimism among investors as Bitcoin’s prices rallied for a short period yesterday reaching a level of trading, higher than 6500USD the same day.

Bitcoin’s rally was followed by its main rivals, namely Ripple, Litecoin and Etherium.

The news sounded even more promising as according to media, Heinz Tännler, finance director of the Zug canton, quickly added that “other jurisdictions such as Malta and Singapore are very active and make a lot of effort to attract these companies” and that the “lack of access to bank services is a significant competitive disadvantage”.

He also added that Switzerland’s central bank (SNB), financial supervisors and government “are willing to help”.

We consider the news as a game changer for cryptocurrencies as the normalization process would make an extensive leap forward, should the banking services be fully available to crypto traders.

We also see the case that Facebook’s easing on ads relating to crypto’s in the past week had already started to fuel hopes of investors.

The easing seems to apply for crypto’s but does not apply for initial coin offerings, making a very interesting categorization.

The arguments for further normalization of crypto’s could be strengthened by Facebooks’ decision, as it also assists further expansion of bitcoin trading terms.

Please note that the above applies not only to bitcoin but to the whole crypto-market.

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Cryptocurrecy Sales on the rise

An interesting statistic also was released recently, by PWC (strategy and consulting division) and the Swiss Crypto Valley association, which indicates that digital currency sales hit a 13.7 billion USD in the first five months of 2018.

According to media, the amount derived from 537 initial coin offerings in 2018, surpassed last year’s total of 7 billion USD.

Such a statistic could imply a promising activity volume for the crypto-market in the future.

See the list of Cryptocurrency Exchanges

Some Governments warn of Cryptocurrency markets

As an epilogue we would like to mention, Bank of England’s recent warnings about crypto assets, towards banks and insurers.

The warning brushes a darker shade to the overall crypto picture.

The warning reminded, that crypto assets could be highly volatile and vulnerable to fraud and it should be considered as another note in a long list of warnings deriving from a number of regulators throughout the world.

Overall, events highlighted in the above report seem to draw a rather rosy picture for the crypto-market, however we would like to share the view that the crypto-market’s road towards normalization may prove to be a bumpy one, with lots of ups and downs and maybe further depreciation of Bitcoin’s value in the longer term in order to become a reliable investing instrument.

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