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It’s been roughly a year since Bitcoin prices peaked at an incredible $19,500 – that must look like a wistful number for the many Bitcoin buyers who missed selling off when they had the opportunity. Prices have fallen dramatically, but it should be kept in mind that Bitcoin was worth only $1,000 in February of 2017. Prices remain over three times higher than they were two years ago, and anyone who had bought the coin back could still sell at returns that would make stock investors green with envy.
The question is, what does the future of the coin look like? Will prices continue to slide down, stay stable, or rocket back to the moon?
Three Likely Scenarios
Scenario #1: Bitcoin triumphs, becoming the new standard for international trade and everyday transactions. Cryptocurrency realizes its dream of replacing fiat currency and you pay for everything from pizza to your mortgage in Bitcoin.
Scenario #2: Bitcoin prices plummet and the cryptocurrency is more or less abandoned, except in niche tech circles or potentially as a B2B solution to high transaction fees.
Scenario #3: Bitcoin becomes the next gold. Maybe the cryptocurrency usurps the yellow metal as an alternative asset to cash, or the two coexist serving similar purposes. Investors use Bitcoin to store wealth outside of inflation-prone cash and its price fluctuates through bull and bear markets, much like gold.
Crypto-enthusiasts may be dreaming of the first scenario, and major banks and governments may be hoping for the second, but the most likely is probably scenario #3: Bitcoin becomes an investment asset like gold in addition to some niche transactional purposes.
Why is scenario #3 the most likely? Tracking the prices of both gold and Bitcoin, as well as the dollar inflation rate, gives a pretty clear picture of what the future may entail. But because Bitcoin remains so new to the world, only time will tell.
There are a few factors that suggest gold and Bitcoin have a lot in common:
- Both are limited resources. Just as there is a finite amount of gold in the ground, and there is no cost-effective way of producing new gold (gold can be created from other elements, but the energy cost is so high that it would cost a quadrillion dollars to produce an ounce), there’s a hard cap on Bitcoin too. There is a controlled supply of 21 million Bitcoins that can ever be mined.
- Gold and Bitcoin are not very useful as money due to their volatile nature. Only a few daring, risk-hungry freelancers want to be paid in Bitcoin. Most of the general population do not want to get their paychecks in an asset that could lose so much value so quickly. It’s not how stable economies are created.
Before getting into cryptocurrency, investors need to know this and be prepared to treat Bitcoin like gold. Investing in Bitcoin can be profitable, but before you buy it, you have to understand what it is you’re buying. Always do your research before making a new investment.
Gold has been one of the most reliable investments of the past few decades. It has a cyclical nature of booms and busts, but it consistently beats inflation. Considering buying Bitcoin as an alternative to gold.
Featured image: Pexels