What is behind the hype about Bitcoin?

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Technological developments disrupted various industries throughout the history of mankind, and some of the most recent developments include the wide acceptance of World Wide Web, the growth of e-mails, and the rise of social media platforms such as Facebook. The growth of Bitcoin certainly falls into this category, and the last couple of years were by far the best years for Bitcoin so far, considering the wide acceptance of Bitcoin across borders.

A bit of history

Satoshi Nakamoto, whose real identity remains a quest to this date, released the whitepaper for Bitcoin on October 31, 2008. Through this whitepaper, Bitcoin was introduced to the world with a view of changing the way people complete transactions globally. The primary objective of Bitcoin, as stated in the whitepaper, is to act as a peer-to-peer payment mode without the involvement of a third-party financial institution. Price of a Bitcoin was less than 1 cent in 2010, but the increasing popularity of Bitcoin helped the price of a Bitcoin surge over the last 5 years, and an all-time high of close to $20,000 was reached in December 2017.

Bitcoin price chart (2014-2019)

(Source – Bitcoin.com)

There were many reasons behind the hype that eventually led Bitcoin prices close to $20,000 in 2017. However, Bitcoin prices soon collapsed as regulatory scrutiny increased and authorities in many countries uncovered scams centered on Bitcoin and other crypto currencies. Nonetheless, the hype for Bitcoin is still real, driven by below discussed developments.

Growth drivers

In this segment, we will look at a number of factors driving the growth of Bitcoin.

Bitcoin is expected to become a store of value

Gold has remained the primary store of value for centuries, which has helped gold prices gain substantially over the years. Investors often consider investing in gold as a safe bet that would lead to capital preservation for many years to come. Today, Bitcoin is increasingly considered as a store of value, and is looked upon as an alternative class of investment that could provide a hedge against capital market downturns, the same way gold does.

Even though there is a long way ahead for Bitcoin to become a widely accepted store of value, the increasingly digitizing world is a good platform for Bitcoin to emerge as a store of value at least for tech oriented investors for the time being. Unarguably, a characteristic of a store of value is a lower level of volatility. Bitcoin is quite volatile at present, but the volatility has declined over the years, which suggests the most-accepted crypto currency is showing some promising signs of becoming a store of value.

(Source – Forbes)

To add some perspective, gold prices were also significantly volatile since the decision by the U.S. government to remove the Gold Standard in 1971.

Some investors are already referring to Bitcoin as the digital gold, and the high expectations of Bitcoin to become a store of value in the future is one of the reasons for the hype about Bitcoin.

Bitcoin transaction fees are declining

Analyzing the trend of transaction fees is integral to determine the future growth of any payment network. Through 2018, transaction fees related to Bitcoin continued to increase, which was one of the reasons for the price collapse in 2018. Tables have now turned, and transaction fees have declined drastically from the all-time highs reached in early 2018.

Historical daily average Bitcoin transaction fees (In USD)

(Source – Bitcoin Fees)

The significant decline in transaction fees is driving the positive momentum behind Bitcoin, and transaction fees are expected to decline further in the coming years. This will open doors for many consumers to consider using Bitcoin for transactional purposes, and this is a reason for the hype behind Bitcoin.

Transaction speeds are lightening

Today, transactions are all about safety and speed. Bitcoin is certainly addressing the latter, and the blockchain technology as a whole is providing unmatched transaction speeds for global consumers. For instance, zero-confirmation transactions will be processed instantaneously whereas a verified transaction by the blockchain technology takes about 10 minutes to complete. Speed at which Bitcoin transactions can be completed addresses the long-standing issue of bureaucratic delays we all experience from time to time when dealing with banks.

Bitcoin average confirmation time is at a historical low

(Source – Blockchain.com)

Improving transaction speeds are attracting millions of new customers to the Bitcoin network, and this is helping Bitcoin gain traction among traditional payment methods. This is another reason behind the Bitcoin hype.

Institutional money is flowing into Bitcoin

Institutional money is just beginning to flow into crypto currencies, and Bitcoin is the leader of the space by a country mile. The Securities and Exchange Commission (SEC) in the U.S. is reviewing two applications submitted by Bitwise Asset Management and VanEck & SolidX to list two Exchange Traded Funds (ETFs) that are based on Bitcoin. Even though the SEC has denied these applications in the past, it’s seen as a matter of time until the regulatory authority approves not only these ETFs, but also a plethora of other ETFs and funds with a focus on Bitcoin. Gold prices took off when the first ETF was approved by the SEC, and the same is expected of Bitcoin as well.

On the other hand, many renowned asset management firms are considering their options of providing Bitcoin backed investment opportunities to their clients. J.P. Morgan, Goldman Sachs, and UBS have already recruited Bitcoin gurus to advise them on the possibilities of this, and many investors are keenly following the movements of these asset management giants to gauge a measure of when these firms will launch Bitcoin based investment products. This will be a major step in the growth story of Bitcoin.

Swiss investment firm, Bitfury, is planning the launch of a Bitcoin mining fund targeted at institutional investors who are interested in mining Bitcoin. Reportedly, this fund has already received the approval of the European Union regulatory authorities.

Measured movements made by asset management firms to involve institutional money in Bitcoin and other crypto currencies is driving the credibility of these crypto currencies, and is certainly a reason behind the hype about Bitcoin.

Media coverage for Bitcoin

A few years ago, Bitcoin was barely heard-of and Wall Street media gave little attention for the blockchain industry. Today, things are drastically different. Many publications including CNBC, Bloomberg, and Wall Street Journal maintain an entire section of their websites for crypto currencies, and this has helped Bitcoin gain traction among the general investing public.

Bitcoin is now treated like an alternative investment vehicle, and the CFA Institute included Bitcoin in its curriculum in 2018. The recognition given to Bitcoin by the most-renowned investment qualification body in the U.S. is certainly painting a positive picture for Bitcoin, and is a reason behind the hype about Bitcoin.

Takeaways

In this article, we discussed about the reasons behind the hype about Bitcoin. The leading crypto currency in the world has come a long way from its humble beginnings, and is set to disrupt the way we transact with each other for good. There is a long way to go for Bitcoin to become a disruptive force, but the crypto currency is showing signs of becoming the unstoppable force it promises to be.

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