One of the major events of 2017 was, without a doubt, the meteoric rise of Bitcoin. As interest in this form of currency expanded, its value rose from $972 in January 2017 to about $14,000 today. But while the numbers seem impressive, a recent string of eventful, tumultuous weeks, where its value suffered sharp ups and downs, has left many questions hanging in the air regarding the future of the cryptocurrency.
The reasons for such drastic and sudden changes in its value include a variety of factors. According to Investopedia’s contributor Jonathan Barker, “much of the volatility [of Bitcoin] will be driven by investor perception.” In other words, the fluctuations of Bitcoin are mainly due to speculation and publicity surrounding the currency, which has increasingly made the headlines in the news and social media.
But what makes Bitcoin so popular in the first place?
One of the main reasons Bitcoin can have such high demand is a result of the security that comes with the currency. The system makes it (in theory) harder for theft, forgery, and any other criminal issues to occur in a transaction. Moreover, people enjoy the ease and practicality of transferring money online. These pros, in addition to the currency’s rising value, are attractive to investors—including millennials, criminals, financial experts, etc —who believe cryptocurrencies are the money of the future and look to cash in on it as soon as possible.
So is Bitcoin really the money of the future?
Not quite. According to Janet Yellen, chair of the Federal Reserve, “It is not a stable source of value and it does not constitute legal tender.” Meanwhile, magnate Warren Buffett called Bitcoin a “mirage,” and advised to stay away from it. Many economists have also labeled Bitcoin a speculative bubble, and the central bank of Estonia went as far as calling it a Ponzi scheme. The less skeptical argue that there are better cryptocurrency systems. However, all other systems are fairly new and untested, so it’s hard to tell which ones will thrive.
So should I consider investing in Bitcoin?
Even though there have been a lot of people who have been able to make a considerably large profit with Bitcoin, the website 99Bitcoins advises those that want to invest in the currency to only invest an amount that they are willing and able to lose. While having bought and held on to $100 in Bitcoin a couple of years ago would have been profitable, the same can’t be said if you were to invest that same money today. As Investopedia puts it, the bottom line simply comes down to learning about the risks of buying Bitcoin and avoiding putting all your investments in this or other cryptocurrencies.
By Kathleen Obrer