Investors are excited about bitcoin — perhaps too excited. Their fervor is easy to understand. Thanks to this phenomenon, investors everywhere are asking if they should buy bitcoin or why should you be excited aboutbitcoin portions of their retirement funds in the cybercurrency.
The air is filled with hype: Bitcoin has crashed before. It is highly volatile. Still, there are many investors who will not touch it because of its considerable downside risk and its association with the seedy side of global finance.
The free market determines the value of bitcoin. When China ordered bitcoin exchanges to shutter, the price of bitcoin slid. Bitcoins are made in cyberspace by computers, beyond the control of any government. To its advocates, the fact that bitcoin has emerged from the Internet why should you be excited aboutbitcoin than a central bank is attractive. Who bitcoin and other cybercurrencies have attracted is another matter.
Bitcoin transactions are conducted on multiple exchanges and verified through the blockchain, a digital why should you be excited aboutbitcoin that leaves transaction records open to the broad community of bitcoin users rather than a financial regulatory authority. Is this transparency a plus or a minus? You will hear both arguments.
Even with this openness, users on bitcoin exchanges are not always required to reveal their identities, which is a plus for criminals. Bitcoin has been linked to money laundering, and earlier in this why should you be excited aboutbitcoin, some economists saw it as little more than a currency for drug lords. Silk Road, a black-market website, saw plenty of bitcoin transactions.
How about funding for terrorist cells? Governments, banks, and institutional investors share a foundational belief that gold is a valuable commodity. Does bitcoin have such a foundational belief beneath it? If speculators stopped believing bitcoin was valuable, then how valuable would it be? Nearly worthless, in the eyes of some observers. In the financial markets, higher prices are not always succeeded by higher prices.
This is essentially the belief holding up bitcoin. Its biggest fans believe its direction will be up and up for years to come, and that it will never really crater again. This is called irrational exuberance, and it has harmed many investors through the years.
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All indices are unmanaged and are not illustrative of any particular investment. Citations 1 — coindesk.
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