Bitcoin has seen incredible growth in 2017, rising nearly 400 percent over the course of the year. The digital currency also reached an all-time high value of over $5,000 at its peak. This meteoric rise had many critics crying, “bubble” while other experts predicted it to be only the beginning. This month, speculation about China shutting down Bitcoin exchanges brought about hysterical sell-offs and the price dropped below $4,000.
Further shaking the nerves of investors, JP Morgan executive, Jamie Dimon called Bitcoin a “fraud” that is “worse than tulip bulbs.”
Antiquated references aside, Dimon and critics are missing the central purpose of Bitcoin that makes it an investment that’s not going away. Here are the top reasons why Bitcoin is not in a bubble and a price drop equals a prime time to buy in.
The Real Bubble May be Traditional Banking
The average person holding money in a traditional savings account will never earn enough in interest to keep pace with inflation. While account holders are enjoying nominal returns, Centralized Banks charge much higher interest for loans and credit cards. It’s near impossible to live in today’s world without debt like a car loan or mortgage. The average interest rate on a savings account hovers just above one percent, while the interest on a credit card can soar above 20 percent. The math just doesn’t add up for account holders. Gain one percent to lose 20 percent. Traditional savings accounts have no real store of value for investors.
Those declaring that Bitcoin is in a bubble would do well to note that stocks, bonds, and real estate are all in a bubble. What’s more, so is the U.S. dollar. The value of these items is manipulated by central banks and investment firms. The 2008 subprime housing market bubble acts as the towering example of how traditional markets can experience devastating crashes.
The math of the dollar debt for investors continues to work against the favor of the average investor.
And Bitcoin is the Better Long-Term Store of Value
By design, Bitcoin was made to be a better store of value for both long-term investors and those using it for payment. Traditional fiat currency has no cap to the amount of bills and coins that can be created. In Venezuela, unchecked printing of money lead to inflation rates that rendered the local currency to be all but worthless. The United States and other countries around the world may be battling inflation at a lower and slower rate, but the problems remain with no solution in sight.
In contrast, Bitcoin has a cap of 21 million coins. There will never be any more created. Currently, there are just over 16 million Bitcoins in existence and it is estimated that the last Bitcoin will be mined in the year 2040. The limited supply means that Bitcoin’s inflation rate will remain minimal until the last coin is mined. When that day comes, inflation will cease altogether.
Blockchain Technology is Growing in Adoption
The aforementioned 2008 financial crisis is the reason Bitcoin exists – Satoshi Nakamoto saw a better way of handling currency; one free of the manipulation and corruption of the traditional market. Bitcoin is a better store of value because it is decentralized from such agencies. Blockchain technology provides transparency unparalleled by any other currency. The blockchain ledger is open source and every transaction is visible to the world. There’s nowhere to hide in such an open form and that protects Bitcoin from corruption.
The value of Blockchain technology has not gone unnoticed by innovators and investors. Not long after Bitcoin first launched, new cryptocurrencies took the concept of Blockchain and sought to improve it and expand the use case scenarios. Ethereum added smart contracts; Ripple created an open exchange network that worked with financial institutions; and the list goes on. As Ripple has shown, even traditional banks have not been able to ignore the implications of the Blockchain. It’s only a matter of time before the technology reaches widespread, global adoption.
Decentralization, limited supply, and the Blockchain make Bitcoin the easy winner for long-term investment potential.
Wall Street’s Criticism of a Bitcoin Bubble Falls Flat
JP Morgan received a $13 Billion government bailout after the financial crisis of 2008. The government had to bail out banking institutions from their own subprime investments. Jamie Dimon’s role as CEO of JP Morgan during the financial crisis makes his criticism of Bitcoin as a “fraud” becomes wildly hypocritical and ironic.
What’s more, the criticism is tone deaf in understanding of Bitcoin’s central purpose. Bitcoin eliminates the middleman, i.e. banks, and provides a means to safely transfer money directly from one individual to another. Decentralization is one of the tentpoles of digital currency and investors are using it as a long-term investment to hedge against the endless inflation of the dollar and corruption of banks.
Naturally, decentralization threatens banks and financial institutions. One can hardly blame them for laying criticism against something that threatens their model of business and profit margins.
The Bottom Line
Most experts agree that Bitcoin will continue to grow in value. Fluctuations are a natural part investment and low points merely provide opportunity to purchase Bitcoin at a better price. Predictions for Bitcoin’s growth range from reaching $100,000 in ten years to reaching $500,000 by 2030.
Bitcoin is not a bubble and cryptocurrencies are here to stay.