What is the hype about Bitcoin?

Bitcoin is a digital currency or cryptocurrency created in January 2009 following the housing market crash. It is one of the digital currencies available in the market today.

Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.

There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity.

Bitcoin is powered by a technology called a blockchain. To understand Bitcoin, you must understand a little bit about the technology in order to make a wise choice for your investment strategy. Read More

A blockchain is a public database that shows all transactions, with user privacy protected by “cryptography”.

There are many types of blockchains, and many types of coins.

Since Bitcoin was created, there have been hundreds of more coins brought to the market, many of which are cheaper, faster, and more efficient.

So, you may be wondering, why is the price of Bitcoin so high?

There are lots of reasons, such as the fact that it was the first coin, it has brand recognition, and you can use to buy services on some internet websites.

But other coins like Litecoin and Bitcoin Cash are catching up.

So, what is the hype about Bitcoin?

Bitcoin frenzy was created purely for some institutions to profit at the expense of gullible people. Strong statement? YES.

As per Nassim Taleb, the erstwhile options trader who made millions predicting the 2008 financial crisis, there are three key arguments against cryptocurrency.

Firstly, in spite of the hype, bitcoin failed to satisfy the notion of currency without government for which he was initially, hugely in favour of.

“The total failure of bitcoin in becoming a currency has been masked by the inflation of the currency value, generating (paper) profits for large enough a number of people to enter the discourse well ahead of its utility,”

Secondly, bitcoin can neither be a short nor long-term store of value. “Gold and other precious metals in digital form are largely maintenance-free, do not degrade over a historical horizon, and do not require maintenance to refresh their physical properties over time,” he said. “Cryptocurrencies require a sustained amount of interest in them.”

Thirdly, bitcoin is not a reliable inflation hedge, contrary to some analysts’ views, and is not a safe haven for investments, citing the March 2020 market panic when bitcoin sank lower than the stock market. Although this could also be partly attributed to Elon Musk’s statement that Tesla would not accept cryptocurrency.

Taleb has been a vocal critic of bitcoin, but the paper also slammed the underlying technology bitcoin relies on. The author pointed to what he sees as a lack of utility of blockchain technology. “There is no evidence that we are getting a great technology -unless ‘great technology’ doesn’t mean ‘useful. And we have done still close to nothing with the blockchain.”

Ever since March 2020, from the onset of Covid 19, Taleb has reversed his stand to bitcoin being an open Ponzi scheme and a failed currency.

Analysts have said if the world’s largest cryptocurrency prints consecutive daily closes decisively below the support level, it could see further downside to $20,000 — back to its level in December 2020.

What should we do as investors? Firstly we must understand the advantages and disadvantages of investing in Cryptocurrency. Introspect on what problems we could face from an Indian perspective. Read Here

There are risks attached to cryptocurrencies and investors must be clear about the place it has in their investment portfolios and financial plans before they start investing in them. India is also reportedly set to propose a law banning cryptocurrencies, fining anyone trading in the country or holding such digital assets. Until India’s securities market regulators come up with some rules and notifications around bitcoin, I would advise investors to tread very very cautiously with this instrument, especially if you don’t understand it and with all the noise around it. But, if you still want to get on this band wagon, I suggest you look at investing some of your money (only so much, that you can afford to take a huge risk with and MAY LOSE completely) on cryptocurrency. Talk to your financial advisor to see how and what proportion of your portfolio is safe to allocate in these new instruments.