Disclosure: The author holds a small amount of bitcoin.
The price of bitcoin (BTC), appears ready to challenge multi-year highs printed on December 15, 2015. As of 12:30 p.m. EST the cryptocurrency was quoted at $438.50, up $13.97 or 3.29 percent in Saturday trade.
Bitcoin, and the accompanying blockchain technology, was created in 2009 by a software developer known only as Satoshi. The Inquisitr has reported previously on Craig Steven Wright, and others, who have been linked to the pseudonym, yet no one has ever convincingly claimed to be the mysterious Bitcoin creator.
The price of bitcoin skyrocketed in 2013 to near $1,200 before plummeting to near $150 by mid-2014. Since then, bitcoin prices have backed and filled in a constructive fashion, and made repeated attempts to break-out of a cup-shaped continuation pattern, as first described by William J. O’Neil, the founder of Investor’s Business Daily.
It is noted that while big players in the financial services industry, including The Goldman Sachs Group, Inc. (NYSE: GS), American Express Company (NYSE: AXP), and NASDAQ, Inc. (NASDAQ: NDAQ) have made investments in blockchain technology, the fate of the currency itself is described as being “unclear.”
Seen supporting the case for investing in bitcoin is the fact that a Bitcoin Investment Trust (OTC: GBTC) now exists and plans for a bitcoin ETF are in development as well. Further, the supply of bitcoin is limited, with a maximum number of 21 million expected to be created somewhere near the year 2140, which may also help to support prices.
“Given its predictable growth and ultimate fixed supply, bitcoin could become a store of value superior to fiat currencies in the long term,” Chris Burniske with ARK Investment Management was quoted. If the currency is adopted by more people for more practical applications it is reasonable to expect that the price will rise: a greater number of people and businesses do appear to be adopting bitcoin.
Gil Luria, an analyst with Wedbush Securities, calculates that if current consumer and business adoption trends continue, it might be reasonable to see the price of bitcoin hit $17,473 by the year 2025: a return of more than 4,000 percent from current levels.
It is also noted that in countries with volatile currencies or underdeveloped banking systems, such as Argentina, Russia, Indonesia, India, and the Philippines, bitcoin has been widely adopted by citizens.
Investing in a completely new technology, however, is not without risk, some of which may be currently unknown.
“I assume that there’s a 20% chance that Bitcoin fails towards zero,” Wences Casares, the CEO of Xapo was quoted. “… there is a… slightly higher than 50% chance that Bitcoin succeeds in being mainstream in the digital world, in which case, there will be as many users as there are of Whatsapp today, and to do that, you need Bitcoin to be worth $1 million per Bitcoin. And that’s 2,000 times what it’s worth today. And there is about a 30% chance that Bitcoin succeeds in some niche use case where it doesn’t disappear, but it’s not broadly used, and therefore the price is not $0 and it’s not $1 million.”
It is noted that because there is a fair chance that bitcoin could become worthless, investors considering buying and holding the cryptocurrency only do so with capital that they can afford to lose. A market disruption, or other unknown event, could easily send the price to zero in a very short amount of time.
It is possible that the group of developers who maintain the underlying bitcoin blockchain could decide to increase the number of bitcoins that can ultimately be mined, beyond the 21 million that is currently expected. Other risks include attacks on the network by hackers, a lack of direction as a result of its decentralized nature, and a reduction in profitability for miners and transaction processors, which could greatly impede the ability of the blockchain to operate.
[Photo by Andrew Burton/Getty Images]