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Bitcoin surges past $50,000 but analysts warn about sustainability

Friday, June 18th 2021

Just as many were expecting the Bitcoin hype to die down, it has now scaled new heights. A record-high of $51,721.15 was hit last week which meant that its market capitalization stood at more than $900 billion. This astounding number is a result of recent interest in the digital currency from some of the biggest names among mainstream companies and investment firms such as Tesla, BNY Mellon, and Mastercard. With this interest not showing any signs of waning any time soon, many expect this value to continue on an upward trajectory. This can give Bitcoin the appearance of a great investment option but not everyone is convinced.

Many experts feel that while this growth is attractive, it is not something that can be sustained in the long-term and none of this recent growth has allayed any fears regarding its volatility. The biggest obstacle in this regard is the fact that Bitcoin is still far from a widely used form of payment. This means that even though this recent interest from mainstream companies is a positive sign, it does not offer any sure-fire assurances.

This volatility, which as per Harley Bassman, managing partner at Simplify Asset Management stands at 80%, means that it is not at all an excellent option for high-volume transacting. It also means that it might not hold its value over time which is probably why Bitcoin has been likened to Dutch Tulips. The Dutch Tulips also enjoyed similar levels of a meteoric rise in value in 1636 before it all came crashing down a year later. While Bitcoin has already lasted longer, it cannot be taken as a sign of continued sustained growth.

Having said that, it is difficult to ignore the eight-fold rise since march of 2020 which amounts to over $700 billion in market value in less than a year. Harley Bassman, managing partner at Simplify Asset Management has suggested that Bitcoin will cross the $100,000 before the year is even over. The primary reason behind this is the classic case of too much demand and not enough supply.

There are only a finite number of Bitcoins, to begin with, and of these 78% are either lost or held by people who have no interest in selling them. That leaves roughly 4 million bitcoins to meet the currently insatiable needs of the market. However, another number that cannot be ignored is the volatility which stands at 87% while gold only has a volatility of 16%.

Another thing worth noting is U.S. broker Wedbush’s opinion that only 5% of public companies would even be looking at investing in Bitcoin in the
foreseeable future. To put it simply, Bitcoin can be viewed as a speculative asset and any investment in it should be done while keeping the risks involved in mind. Its value could keep rising or it could suffer a similarly meteoric fall. Many financial experts feel that it will become a more viable investment option once its volatility comes down a bit and playing the waiting game may still be the prudent thing to do.