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R1m bitcoin now within sight

It was trading at just R2 450 six years ago.
Investors should continue to monitor the crypto’s volatility. Image: Chris Ratcliffe, Bloomberg

Bitcoin came within a whisker of R1 million on local exchanges on Tuesday, hitting a new all-time high.

Six years ago bitcoin was trading at R2 450 on local exchanges. That’s a nearly 400-fold increase since 2015, though it has been far from a smooth ride, with 80% to 90% price corrections along the way.

On overseas exchanges the coin breached $64 000 for the first time this week, with some analysts calling $80 000 as the next upside target.

Bitcoin has more than doubled in price since the start of 2021, fuelled by large-scale institutional adoption from companies like Tesla, Square and MicroStrategy, with PayPal recently announcing its 375 million customers can now make purchases with cryptos such as bitcoin and the Ethereum blockchain currency, ether.

Read: Bitcoin on the brink of fresh year high following PayPal embrace

The latest surge in bitcoin’s price has pushed up the stock prices of companies with exposure to the world’s biggest crypto.

The stock prices of Tesla, MicroStrategy, Square and PayPal have all been riding the bitcoin wave this last week.

“R1 million per bitcoin may seem like a large number, but it’s important to look at the total value of bitcoin in its entirety,” says Farzam Ehsani, CEO and founder of crypto exchange VALR. “The entire market cap of bitcoin is just over $1 trillion, which is an order of magnitude lower than gold.

“If the thesis of bitcoin being ‘digital gold’ materialises, then it still has tremendous potential to increase in value over the long term, despite short-term volatility.”

Listing

Another factor driving the bitcoin price is the listing of one of the world’s largest crypto exchanges, Coinbase, on the Nasdaq on Wednesday, at a reference price of $250 per share.

Read: Bitcoin rallies to all-time high as traders eye Coinbase listing

“Arguably, the listing is driving the price of bitcoin, as the Coinbase valuation has shown many institutional investors that there is significant value in crypto assets, resulting in increased demand,” says Josh Miltz, co-founder of crypto investment firm BitFund.

“The Coinbase listing has also provided further legitimacy to the crypto market, resulting in the increase in demand from both institutions and consumers.”

Miltz adds that a R1 million bitcoin is not that surprising, as it has been expected for years.

“At BitFund, we have been following the data and, arguably, the most important trend of this bull cycle is the rate at which bitcoins are being pulled off exchanges. There are approximately 1 500 bitcoins being pulled off exchanges every day, whereas there are only approximately 900 bitcoins being mined every day, after the supply halving in May 2020 (which is an event that happens every four years).

“The data shows that not only have miners stopped selling their coins, but they have begun accumulating more bitcoins for themselves. Based on the basic supply and demand dynamics, this has resulted in higher prices, which we should expect to continue.”

Inflation hedge?

With the listing of Coinbase on the Nasdaq and accelerating institutional adoption, Miltz says investors are starting to see bitcoin as a hedge against inflation, particularly after US President Joe Biden administration’s recently signed off on a $1.9 trillion stimulus package.

In a recent online survey by Forbes magazine, some 500 corporate attendees said they expected their companies to buy bitcoin this year.

“We went from zero adoption in the world to 26% enthusiasm in less than 12 months,” MicroStrategy CEO Michael Saylor told Forbes.

The question many are asking is where to from here?

Dan Held, growth lead at crypto exchange Kraken, told Moneyweb this week that bitcoin is probably in a “super-cycle” which still has years to run. He foresees a price eight to 10 times higher than where it is now. It won’t be a smooth ride, if history is any guide.

After the December 2017 all-time high of $20 000, the bitcoin price crashed 84% over the following 16 months, before recovering to its current levels.

“While the data suggests that we are in a bull market and there is still room for a R1 million-plus bitcoin, the trends can change and the volatility should be monitored by investors,” says Miltz.

“It is easy to get caught up and fear missing out in a bull market, so all allocations to cryptocurrencies should be made with risk capital, and follow the principles of diversification to minimise risk.”

Commenting on bitcoin’s push towards R1 million, Revix CEO and founder Sean Sanders comments: “This is just the start. With bitcoin and other cryptocurrencies, the more valuable they become, the less risky they become. The reason is you create a wider investor base, with bigger institutional backing.

“You also have new applications being developed in the decentralised finance space, such as non-fungible tokens (NFTs), gaming, online gambling and all sorts of other applications that are being developed around the blockchain.”

Bitcoin price in rands

Source: Trading View

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From $60k to $100k is “only” a 50% move, but everyone is comparing it to the 600% increase from this time last year.

No-one knows where BTC is going, but I expect demand to still increase with all the IPOs.

Most interesting is the fact that Bitcoin needs to be valued back to US dollars. Maybe we should value to the sun, then owners of these coin can value it to the weight of solar rays of whatever they prefer. This value is just the same as one can claim ownership of the sun and start billing all solar companies with a levy!
Maybe block chain have a place in the market, still can not understand the so called value to this idea.

This is the great paradox of crypto-so-called-currencies. They are not only utterly unusable as real currencies (the blockchain technology is inherently too slow for mainstream use), but, even worse, the very last thing you want is for your currency to have these wild swings in value.

A simple thought experiment illustrates why crypto-so-called- currencies are a terrible idea: you are a farmer and buy seed and diesel for the rand equivalent of R5m in crypto. You work hard, plant and harvest your maize. You sell your maize for R7m and are happy with your R2m profit. Except, in the 6 months it took you from planting to harvest, your crypto has now appreciated and you could have gotten R10m in rand if you’d just hung on to it. Now the farmer is tearing his hair out. He’s wasted all that effort and could just have sat in the sun drinking beer, and made R3m more. This nightmare is called deflation.

And, make no mistake, all the crypto shills, those who regularly start screaming and yowling(“fiat money”, “you don’t understand what money is”, yada, yada) when this is pointed out to them, are counting on exactly this – that their so-called currency keeps appreciating.

Incitatus, when a person with a Masters Degree in Computer Science like yourself makes such comment, it makes me really concerned about the ‘raison d’etre’ why crypto was hatched in the first place.

Should we be worried?
(I’m closing my eyes…)

@Michael – crypto based on blockchain, as all the well-known ones are, are unworkable using present technology. The text below, from a paper submitted at the Wharton Business School, explains the problem. (I’m not saying crypto won’t ever work, but as it stands at present, using blockchain, it can’t. It will require a radical rethink and redesign. Visa can handle thousands of transactions per second. Imagine standing around for 20 minutes while buying groceries with bitcoin, waiting for your transaction to clear.)

“In the bitcoin system, the master ledger (or ‘blockchain’) is theoretically distributed across all users. Although this seems like a good idea, the distribution of ledgers poses two problems. First, the ledger gets increasingly bigger as usage rises over time until it
becomes unappealing or impractical to download and constantly update. Second, it creates a gross inefficiency in the verification process of the ledgers after transactions. As the number of users increases once bitcoin adoption gains ground, the ledger that everyone is theoretically supposed to download and update becomes more unwieldy.

First, it is impossible to make these transactions secure by mobile phone, since most phones don’t have the capacity to hold 125 GB of data. Instead, a phone user would have to rely on an exchange that constantly updates its ledger and keeps the coins in a specific
account. However, exchanges are employed not just by phone users; those with requisite storage on their computers also may open accounts with an exchange simply for convenience. By concentrating ledgers in a few exchanges for the sake of efficiency and ease of use, security is compromised. If an attack were to happen on a provider of ledgers, then entire records of transactions could be
lost No one would be able to prove who owned what, and large amounts of bitcoins could be stolen”

“First, it is impossible to make these transactions secure by mobile phone, since most phones don’t have the capacity to hold 125 GB of data.“… Cloud-based technology?

End of comments.

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