Bitcoin, like many fast-growing stocks, has tumbled hard this year. Bitcoin’s value has plummeted over 50% from its peak just last fall as investors have fled from risk assets while the cryptocurrency failed to live up to its name as an inflation hedge.
While some investors appear to believe that the cryptocurrency has dropped too far, relative to its previous high, this claim seems dubious when examined more closely. After all, there is no simple solution for valuing Bitcoin.
The value of Bitcoin as a cryptocurrency is difficult to determine because it lacks the fundamentals that investors use to value productive assets like equities, bonds, and real estate. Over its history, Bitcoin has fluctuated violently like a speculative asset like a penny stock. Even today, much of the worth behind it seems speculative.
Bitcoiners frequently make the case that gold is the most appropriate comparison for a cryptocurrency’s entire value. Because all of the world’s gold is valued at approximately $12 trillion, many anticipate that Bitcoin’s market capitalization will one day reach that level, from $580 billion today.
If we can’t evaluate Bitcoin based on figures, perhaps its real-world impact in comparison to other comparable firms, especially large tech companies, as crypto is essentially a technology.
At the time, Bitcoin still appeared to be more of an idea instead of a reality, and its value was linked more to its potential than what it was currently accomplishing. It’s inefficient and costly to use as a currency, and it has barely scratched the surface of the payment market.
Bitcoin, as a means of exchange, appears to be attempting to solve an issue that doesn’t exist, as fiat currencies and credit card purchases are more efficient than cryptocurrencies at processing payments. Despite the fact that it’s “digital gold,” Bitcoin’s recent decline in value indicates that it’s a poor investment, according to some experts.
Around 114 million Bitcoin accounts exist across the world, so even compared to other companies like Facebook, Google, and Apple, ownership of Bitcoin is miniscule. The majority of those who own Bitcoin are investors rather than users of the currency. Just 0.01 percent of all accounts own nearly a third of global Bitcoin.
Bitcoin’s supporters will say that the cryptocurrency has a long way to go before it can completely disrupt conventional money. Projects such as the Lightning Network are in development to speed up transactions and add more usefulness. It’s still a mistake to believe Bitcoin is a fresh innovation.