Bitcoin appreciated 423% in 2020 alone, rising from $ 5,080.59 to $ 26,762.44 at the end of the year. If it were a normal asset, perhaps a stock of a publicly traded company, the analysts’ indication would probably be to make profits.
However, it was precisely this increase that aroused the interest of new investors, opening space for a new market. Recently, an analyst at the bank JP Morgan, said that the cryptocurrency should reach a quotation of 146 thousand dollars.
It is worth remembering that it was in 2020 that we had purchases of billionaire funds from Paul Tudor Jones, Stanley Druckenmiller, in addition to MicroStrategy, Square, and MassMutual companies and policyholders. In short, it was the year that enshrined the entry of institutional investors in this market.
What is Bitcoin? What is it for?
Bitcoin is a digital currency that works independently, without a central entity. Similarly, anyone can audit balances, total coins issued, and even carry out transactions.
One of the technologies behind Bitcoin is Blockchain, this database distributed on computers that participate in the network. Cryptocurrency transfers are efficient, fast, and secure. In addition, there is no way to censor or reverse transactions, unlike the traditional financial system.
In this way, anyone can be their own bank, all it takes is a connection with the other users on the network. In other words, a smartphone and internet access are enough to manage your virtual wallet.
Got confused? This other article shows in more detail what Bitcoin is, and how this decentralized network that supports cryptocurrency works.
Where does the value of Bitcoin come from?
Bitcoin emerged to take foreign currency issuing power out of the hands of governments, which through inflation reduces savers’ purchasing power. This was made possible through a digital currency whose value is determined solely and exclusively by free supply and demand.
Among the features that make Bitcoin desired, we can mention:
- Decentralization: there is no institution or group that controls the network, both in terms of development and in the maintenance of daily life;
- Security: the network is protected by a gigantic computational effort, distributed among miners and users through their nodes, the full nodes;
- Shortages: in the creation of its source code, a progressive and decreasing timetable for issuing new Bitcoins to remunerate miners was defined, with a maximum limit of 21 million coins;
- Immutability: once the transaction has been included in the network by a miner, and verified by the participants (full nodes), it becomes irreversible;
- Fungible: because it is a digital asset, cryptocurrency is fungible and divisible, that is, it can be divided into small parts, and traded among its participants without losing its characteristics.
Although it is possible to copy the Bitcoin source code, it is very difficult to get the adhesion of the large number of developers, savers, and more importantly, the certainty that the initial rules will be followed by everyone, voluntarily.
In summary, alternative currencies (altcoins) can provide other benefits or features, but they are unlikely to achieve the decentralized form that Bitcoin has achieved. It took 12 years of resilience to reach that $ 26,762.44 for each coin.
After all, how much is Bitcoin worth?
More important than measuring the unit price, it is valuing the total assets. That is, by multiplying by the number of coins already issued, it is possible to obtain their market capitalization. As of January 5, 2021, we have the number of 18,591,506 existing BTC.
This can be easily verified in the Bitcoin network software, or by consulting block explorers, including clarkmoody.com, satoshi.info, among others. If you prefer, there are platforms and applications that have a catalog that gathers information from various cryptocurrencies. Nomics.com and Messari Screener are good examples in this regard.
Thus, by multiplying the 18.6 million BTC by the current price of $ 30,483.53, we find a total capitalization of R $ 3.23 trillion reais, or 605 billion dollars.
Ah! Taking the opportunity to remember that it is possible to trade Bitcoin fractions, known as satoshi. In the same way that gold can be quoted in kilograms or grams, cryptocurrencies can be traded in small amounts, in the order of $ 0.0035 approximately for each satoshi. Cheap, isn’t it?
What is the expectation of appreciation?
Bitcoin, like any other asset, including gold, company shares, or real estate, has its value dictated solely by the market’s supply and demand. Thus, it is impossible to predict how this balance will be over time.
Unlike the fixed income market, where there is a predictability of returns, in currencies, commodities, and variable income, the price fluctuation is free. In summary, the expectation of appreciation depends on the number of interested parties, that is, the adoption of Bitcoin as a financial reserve, or means of transaction.
In this sense, there are several theories that dictate the potential value of cryptocurrencies. Some claim that scarcity, measured by the annual quantity issued against available stock, is what determines fair value. Meanwhile, there are those who claim that the mining cost should serve as a basis for pricing.
Why are institutionals buying Bitcoin?
In general, investment funds and companies that bought Bitcoin in recent months point to the dollar’s devaluation as the main factor in the decision. That’s because governments put more than $ 7 trillion in circulation in 2020 alone.
Instead of using these resources to buy goods and services, or to expand production, beneficiaries chose to save. As a consequence, the North American stock exchange reached its historic high, as did the index of the Case-Shiller real estate market.
Another consequence of this wave of stimuli was the fall in interest rates, which ended up forcing investors to seek investments with some prospect of return. Thus, little by little, the perception that Bitcoin can act as a protection, precisely because it is not inflationary, ended up catching such investors.