As a currency, bitcoin has proven advantages. Its digital nature makes it hyper-portable, divisible, durable, and unconsumable. Its decentralization means that it isn’t beholden to the vulnerabilities of national currencies and is perfectly transferable across nations.
In other words, bitcoin isn’t a currency that is kept in banks–which many believe gives the cryptocurrency leverage–because there’s no limit on how much you can spend. Other reasons include that international transactions are done relatively quickly, and that bitcoin is one of the cheaper ways to spend international payments.
With that in mind, you might now be asking yourself: why invest in bitcoin? Here, the Investing News Network (INN) breaks down the essentials, what the market currently looks like and its future outlook.
Why invest in bitcoin: regulations coming in place
Bitcoin has come a long way since being faced with resistance from both governments and potential consumers. The US Internal Revenue Service took action in 2014 to discourage the use of bitcoins, by ruling that “general tax principles applicable to property transactions apply to transactions using virtual currency.” In practice, this means that the fluctuating value of bitcoins could trigger capital gains tax for consumers.
Since then, however, it’s been reported that several US states are in the process of working on bills that accept or promote uses of bitcoin–and blockchain. One state in particular that has already passed the digital currency into law is Vermont, which Bitcoin.com states that bitcoin will now be recognized as a “permissible investment” for money transmission operations.
Furthermore, CoinDesk.com reported that Arizona is also getting in on the action, having passed a bill that recognizes blockchain signatures and smart contracts.
On a larger scale in the US, the Securities and Exchange Commission ruled in July that initial coin offerings should be regulated and subject to federal laws.
“The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us,” SEC Chairman Jay Clayton said in the release. “We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.”
Abroad, cryptocurrency regulations are underway as well. CryptoCoinsNews alleges that India is looking to manage bitcoin, including other forms of digital currencies, as its population increases. In China, Bitcoin Magazine reported that the digital currency as a “virtual good” is being met with certain challenges, specifically from the People’s Bank of China.
A translation of the statement from the bank reads, “Bitcoin is not a currency and shouldn’t be viewed as such. Those who invest in bitcoin should accordingly be aware of the risks it poses and protect their investment.”
On that note, other reports suggest that Beijing is looking to regulate digital currency trading to prevent bitcoin platforms from becoming money laundering sites.
Zhou Xuedong, operations director at the People’s Bank of China, was quoted saying, “There needs to be a clear bottom line for the management of bitcoin trading platforms and websites. A blacklist should also be set up.”
“Activities such as trading or financing on margin and market measures such as commission-free trading must be banned,” he continued.
In that regard, in early September it was announced that China had banned initial coin offerings altogether, which authorities from the People’s Bank of China allege is to protect protect investors and “dealing with the risks properly.”
Following that, it’s suggested that all trading and uses of cryptocurrencies–like bitcoin–could now become illegal in China, Business Insider reported.
On the other hand, over in Japan bitcoin has officially been recognized as a method of payment since April 1, 2017–and even saw its valuation rise above the $1 billion mark–while Russia is making steps to accept it is a method of payment. For example, the country’s largest e-commerce retailer, Ulmart, previously announced plans to accept bitcoin as payment starting September 1, 2017, although there has been no additional news as to whether this is in place yet or not.
Why invest in bitcoin: soaring price
Bitcoin reached its first all-time high on November 29, 2013, when it was valued at $1,137. Since then it has experienced various highs and lows, but 2017 is certainly shaping up to be the year of bitcoin.
Case in point, bitcoin has reached several all-time highs in 2017 and soared above $5,000 an ounce on September 1 to $5,013–representing a 402 percent increase from $997 in January.
If you’re still asking yourself “why invest in bitcoin?” perhaps consider this. With the rising price of the cryptocurrency over the last couple of years, bitcoin has begun rivalling safe-haven assets, such as gold and silver. Case in point, bitcoin surged ahead of the gold price for the first time ever in March 2017 (at the time, bitcoin was $1,268 while the precious metal was $1,233 an ounce).
As such, analysts have even suggested that bitcoin might be the place to put your money instead of gold. Chris Burniske, blockchain products lead with ARK Investment Management, is one of them.
In an interview with CoinDesk, Burniske said that global supply of the yellow metal has “clandestinely increased” one-to-two percent over the last 100 years or so.
“If you were to ask people what gold’s supply schedule looks like over time, they probably wouldn’t draw you something that looks like an exponential curve,” he said. “With gold being sneakily inflationary, it’s not set up to preserve value in the way that bitcoin is.”
Of course, there are certainly advantages to gold that bitcoin doesn’t have, and vice versa. Noted by Forbes, bitcoin supply is limited at 21 million, while gold supply increases as its price does, which could be a motivator for miners to mine the yellow metal.
As a result of the bitcoin supply limit, in August bitcoin cash was introduced to split from the main bitcoin to help facilitate quicker transactions.
At the time of its launch, Charles Hayter, founder of CryptoCompare, said in an interview with CNBC that bitcoin cash as a “pivotal moment” for cryptocurrencies
“The inception of Bitcoin Cash may prove to be exactly what Bitcoin needs,” Hayter said.
Still–bitcoin’s price increase is certainly impressive no matter which way you look at it,
Why invest in bitcoin: market outlook
Moving forward, there’s certainly a growing number of opportunities to be made in bitcoin. For those who genuinely believe in the potential of bitcoin to become a major international currency, this may constitute an excellent time to invest in the currency. Further on that, it’s possible the digital currency could become a global currency sooner than you might think, while the potential for bitcoin ETFs is looming on the horizon as well.
That said, with China banning initial coin offerings and potentially all trading and uses of cryptocurrencies as a whole, many analysts are still bullish on its future outlook, including Standpoint Research founder, Ronnie Moas. Moas projects bitcoin could reach as high as $20,000 in the next three years and that its market cap will reach $2 trillion over the next 10 years.
As you can see, the cryptocurrency has grown significantly in just a short amount of time–relatively speaking–and has evolved drastically since the start of the year alone. With that in mind, bitcoin has certainly positioned itself as an exciting space for investors to jump into–for now, and the long term.
Will you invest in bitcoin? Let us know why in in the comments!
This is an updated version of an article originally published on the Investing News Network in 2015.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.