Central banks in various countries around the world have implemented quantitative monetary easing policies, pushing up asset prices and allowing gold to rise with the stock market. However, some investors are worried that gold has insufficient hedging function, so they consider the investment option of Bitcoin, which is known as "digital gold."
Bitcoin, the world’s biggest cryptocurrency, has risen from a $10,000 to a $60,000 in just half a year, and continuing its rally as major companies and financial institution adopt cryptocurrencies. Jesse Powell, the chief executive of one cryptocurrency trading exchange said “In the near term, people see it surpassing gold as a store of value, so I think a million dollars as a price target within the next 10 years is very reasonable”. Is Bitcoin worth investing in? Will Bitcoin become the core of the new currency system in the future?
Investment Trends
- The Fed’s Quantitative easing and stimulus plan, young investor are planned to using portion of their stimulus money to invest in bitcoin, which in turn pushed up the price.
- High price volatility brings high returns.
- Bitcoin and gold have many similarities. It can be used as a safe-haven asset, more like a new substitute for gold especially when US dollar are weak and inflation generate the risk.
- Online payment service PayPal will allow US users to buy, sell and store cryptocurrencies through the PayPal application. It is estimated that cryptocurrency can be used as consumer payment in 29 million merchants. Electric car Tesla company also said it would start accept bitcoin as payment method for its products. As liquidity increases, investors' willingness to buy Bitcoin will increase.
- Investors' willingness to buy Bitcoin has increased because of high liquidity.
- Canadian officials have approved the listing of two Bitcoin ETFs. The "Purpose Bitcoin ETF" listed on the Toronto Stock Exchange which will officially start trading in 2021. It becoming the world's first Bitcoin ETF to be listed. Brazil is also following up to approve the listing of Bitcoin ETF. The market looks forward to Bitcoin ETFs listed in the United States in the future. That the bitcoin could have a promising future.
Investment Risks
- Non-legal tender It has not been recognized and guaranteed by any government agency, and there is no protection mechanism. If the password is tampered with by a hacker, there will be no way to retrieve your Bitcoin.
- High transaction fees Few online payment platforms, high transaction fees between legal currency and cryptocurrency.
- High price fluctuations, high-risk investment products, do not have savings value.
- Criminal Money laundering Use cryptocurrency as an anonymous money laundering, illegal transactions on the black market, smuggling and drug trafficking, etc., in the absence of actual regulatory regulations in the law.
- It is not too difficult to build a block-based cryptocurrency, so new virtual currencies will be existing and there is a risk of being replaced by others.
- Total energy consumed by the bitcoin mining process could reach 128 TWh (terawatt-hours) this year, that is 0.6% of the world electricity production. This is very harmful to the human health and earth environment.
The technical potential of digital currencies is worthy to pay attention, because cryptocurrencies are becoming more and more popular and widely used by the public. However, how to strike a balance between privacy and compliance among developers, exchange operators, and users without disrupting the entire financial system is a challenge of the world.
