What is the cryptocurrency “BITCOIN”?
In terms designation, BITCOIN is not explicitly a currency but rather an asset class (investment class). An asset class is primarily used for safekeeping or protecting the value of (financial) assets. The best-known conventional asset class historically has been, and remains, the savings account. BITCOIN is the most modern asset class. Additionally, BITCOIN can also be used for payments and transactions.
Could currencies like the euro be replaced by BITCOIN in the foreseeable future?
I don’t think so. States want to be in control their monetary systems. What is definitely coming is the abolition of cash. There are already programs underway to develop digital currencies at an EU level. I think it’s very likely that a digital euro/dollar will be introduced.
Why is BITCOIN so popular?
It has to be acknowledged that BITCOIN is exceptionally secure. A cryptographic process is used to produce digital signatures that are de facto forgery-proof. Blockchain prevents BITCOINs from being issued twice.
Moreover, the volume (number of coins) is limited: a maximum of only 21 million BITCOINs can be issued. So to summarize, BITCOIN represents a new asset class with the following advantages: built-in anti-counterfeiting protection, limited volume, and decentralization. It would therefore not be an exaggeration to say that BITCOIN may be an even better asset than gold.
BITCOIN already achieved a so-called peak of just under 17,000 euros at the end of 2017, but then fell again. What is causing the current surge?
This comes down to an interaction of multiple factors: firstly, in October 2020 PayPal announced that it wants to make cryptocurrencies, especially BITCOIN, available to the masses. In my opinion, this was the biggest development since the invention of BITCOIN in 2007. Secondly, PayPal’s move was significant in particular because it opened the door to BITCOIN to institutional investors. Thirdly, the initial big investors then entered, the first of all being Michael Saylor, who invested more than one billion USD in BITCOIN. Fourthly, people are increasingly concerned about inflation in the wake of the COVID-19 crisis – BITCOIN offers perfect protection from that as well.
There are many other cryptocurrencies besides BITCOIN. Will they all profit?
Probably not. Other cryptocurrencies don’t keep up with BITCOIN in terms of the above-mentioned technical characteristics and limitations to volume. They will definitely persist for this or that use, but unlike BITCOIN they will not represent an entirely new asset class with unique selling points.
Where is the journey going? What are the objectives?
There are many different opinions on this. Several analysts, as well as banks like J.P. Morgan, consider it likely that a price of over USD 150,000 will be achieved in the medium-term, and some believe that BITCOIN could even reach a price of USD 500,000. However, there is a long way to go. I do not consider a value of over USD 150,000 to be unfeasible.
Should investors be buying BITCOIN even now?
This is a question of principle and not a question of timing. Why? If I believe in BITCOIN and have researched the topic accordingly, then I will and ought to buy. Yes, we are now at a price of USD 50,000, which may be high. But if you believe in BITCOIN and share the assessments of the professionals, then the entry price does not really matter. You may be more comfortable buying in tranches and thus catching more and less favorable entry moments at a given time. That being said, it ought to always be clear that there are always sharp corrections on the way up for any asset.