first time Bitcoin (CRYPTO: BTC) It was mined 13 years ago. For the first three years, it was worth less than a penny. But in 2011, it crossed a major milestone when it reached the level of the US dollar.
At that time, many ridiculed Bitcoin and argued that it could never be used as a mainstream currency or long-term investment. But if you take a contrarian view and buy 100 Bitcoins for $ 100 that year, your investment is worth a whopping $ 4.32 million today.
How did Bitcoin silence critics?
When Bitcoin was created, the idea of using computer chips to mine digital currencies seemed eccentric and ridiculous. But in reality, it wasn’t much different from mining precious metals using industrial machinery.
Image source: Getty Images.
Like gold, Bitcoin is a finite resource. As more Bitcoins are mined, mining new Bitcoins becomes more difficult and less cost effective. Early Bitcoins could be mined with a high-end PC graphics processing unit (GPU).
But today, due to the time and energy required to mine a single Bitcoin, Bitcoin cannot be effectively mined on a regular GPU. Instead, they needed an expensive device known as an application-specific integrated circuit (ASIC) to mine a stable supply of Bitcoin. Still, the same economic logic applies to Bitcoin and precious metals. Miners can only make money if the cost of machinery and labor does not exceed the market value of metal.
In addition, the Bitcoin algorithm limits its lifetime production to 21 million Bitcoins. It is generally estimated that the last Bitcoin will be mined by 2140.
As more and more people understood these concepts, they began to value Bitcoin as an asset alongside gold and other precious metals. In addition, the anonymity and security of Bitcoin transactions enabled by a distributed ledger technology called blockchain has become an attractive alternative to fiat currencies for financial transactions. More and more investors have begun to market Bitcoin as a potential hedge against inflation.
The future of Bitcoin
After Bitcoin became equivalent to the US dollar, more investors, analysts, entrepreneurs, and even the government were on the rise.
Pure bitcoin mining companies like Marathon Digital (NASDAQ: MARA) When Riot blockchain (NASDAQ: RIOT) Cryptocurrency exchange like appearance, Coinbase (NASDAQ: COIN) Growing up, the first Bitcoin Exchange Traded Fund (ETF) is on the market.
Bitcoin publishers like Jack Dorsey and Mark Cuban have sparked even more enthusiasm from mainstream investors, and more and more retailers have begun accepting Bitcoin as a payment option. El Salvador has even become the first country to officially accept Bitcoin as legal tender last year.
ARK Invest’s Cathie Wood recently predicted that Bitcoin prices will reach $ 560,000 by 2026. This makes the first $ 100 investment worth $ 56 million. Wood believes that Bitcoin can achieve its high price target if all institutional investors allocate only 5% of their portfolio to cryptocurrencies.
But it’s not all sunlight and rainbows
The future of Bitcoin may look rosy, but there are still many challenges to overcome. Government regulators around the world are implementing bans, restrictions and taxes on Bitcoin and other cryptocurrencies. Countries can also develop their own digital currencies that are fixed to their fiat currencies as a viable alternative to cryptocurrencies.
The environmental costs of Bitcoin mining, which caused Elon Musk to oppose cryptocurrencies last year, have also signaled a danger. Alex de Fries, a Dutch economist, estimates that if Bitcoin’s price reaches $ 500,000, miners will emit more than 617 million metric tons of CO2 annually. This exceeds carbon emissions in countries such as Brazil and the United Kingdom.
Bitcoin volatility, on the other hand, can prevent Bitcoin from being used in everyday transactions. If few retailers are adopting Bitcoin as a payment option, Bitcoin can fail as a currency and continue to be used as a speculative investment.
Is it too late to buy Bitcoin?
Bitcoin’s volatility has failed to be an effective hedge against inflation over the past few months. However, if Bitcoin prices stabilize and regulatory headwinds weaken, that may change in the future.
I think investors should touch Bitcoin to some extent, but it should only occupy the low single digits of the portfolio. That way, you can profit if the price of Bitcoin soars, but you won’t suffer any permanent damage if the bubble bursts.
This article represents the opinion of a writer who may disagree with the “official” recommendation position of the Motley Fool Premium Advisory Service. We are miscellaneous! Asking investment papers (even our own) helps us all think critically about investment and make decisions that help us become smarter, happier, and richer. It will help.
