January 22, 2021


News Updates Everyday

“Bitcoin is mainly worth money because others want to buy it”

"Bitcoin is mainly worth money because others want to buy it"

Source: Kup.nl.

Bitcoin’s price is reaching milestone after milestone. Last week, the cryptocurrency rose from $ 35,000 to over $ 40,000 (almost 33,000 euros) within a day and a half. Here, too, the corona crisis seems to play an important role. Nevertheless, other cryptocurrencies could gain the upper hand in the long term. Kup.nl lists some questions and answers about the current investment hype.

Why is Bitcoin so popular with investors?

In short, it’s one of the few investments that still makes a decent return. The interest rates are low. So when you put your money in a savings account, you make next to nothing or even have to pay to keep your money there. They also make little on bonds while stock prices are relatively high. And when there is an investment that is growing in value, it becomes very interesting.

Teunis Brosens, specialist in digital finance and legislation at ING, sees another reason. “More and more institutional investors such as pension funds and insurers see Bitcoin as a realistic investment opportunity. As a result, there is greater interest in digital currency. In addition, more and more governments are developing rules for investing in cryptocurrency. All of this is making digital currencies more and more mainstream. “

It is noticeable that a Bitcoin has no underlying value, for example a share. With a share you own part of a company. The company can grow, make profits, and pay dividends. So there is a cash flow behind it. This is not the case with a crypto coin. “Bitcoin is currently mainly worth money because others want to buy it,” explains Rik Frehen, Associate Professor at Tilburg University.

What role does the corona crisis play?

Investors fear inflation in the future as governments and central banks pump large amounts of money into the economy to cushion the blows of the COVID-19 pandemic. “If the banks put more euros into circulation as a result of this comprehensive policy of governments and central banks, the euro will become weaker,” explains Ralph Wessels, Head of Investment Strategy at ABN AMRO.

“This also happens in the USA. Since the corona crisis, the actual interest rate, also known as the real interest rate, has become negative there. This is because expected inflation is higher than interest rates. In such a situation, investors want to invest in something that holds value. “

In addition, it is important that there are only a limited number of Bitcoins in circulation. There are currently around 18.5 million and that can grow to a maximum of 21 million. In addition, many owners do not offer their bitcoins for sale at all. That makes it even rarer.

How far can the value go up?

It’s hard to predict. The price of Bitcoin fluctuates a lot. For example, on Thursday evening after reaching the milestone of 40,000 euros, the currency fell again a few hours later to an amount below 37,000 dollars and rose again around 41,000 euros on Friday around noon.

The currency has also lost a lot of its value beforehand. In December 2017, the company lost 80 percent of its value in a year, and when the COVID-19 outbreak last March, its share price also fell around 40 percent in a month. By the way, there was still a value of around 4,500 euros.

Opinions differ about the future price development of Bitcoin. Some market participants see Bitcoin as a possible new bubble, while others are forecasting an even higher rate of over $ 100,000.

Will Bitcoin ever become a widely accepted means of payment?

Although investors currently seem primarily interested in Bitcoin and other digital currencies, they were originally intended as a means of payment. You can pay with the currency at more and more companies and institutions. For example, in a Swiss canton you can use it to pay your tax, and various payment service providers, including PayPal, have now also accepted them.

Still, most retailers will be surprised if, for example, they want to pay for their purchases with (a piece of) Bitcoin. “However, I do not rule out that in the long term you will actually be able to pay with digital currency in many places,” says Frehen. “Though I doubt Bitcoin will ultimately be the cryptocurrency that will win the battle.”

The disadvantage of Bitcoin is that it was the first crypto coin. “Developers of other digital currencies were able to recognize the teething problems Bitcoin has. You could take these out and improve them when developing new currencies. So in the long run it could be a different currency that we will use on a large scale. “