A cryptocurrency is a medium of exchange using cryptography to secure the transactions and to control the creation of new units. The value of Bitcoin has been highly volatile at times over past years because there is no reliable authority regulating its use. The key question that needs to be answered while valuing Bitcoin and any other cryptocurrency is whether the supply of the cryptocurrency is limited. This paper will establish whether there is a scarcity of Bitcoin and whether it can be used as a medium of exchange. Bitcoin does help in providing a store of value for money without the need for a central authority. The results show that there is no significant shortage of supply and a positive demand for Bitcoin.
1. The Scarcity of Bitcoin and its Medium of Exchange Properties :
The demand for Bitcoin is increased by the rising price of the demand for alternative cryptocurrencies like Ethereum, Monero, $loomi and Dash. The higher its price rises, the greater number of people opt to convert their fiat currency into cryptocurrency and vice versa. In order for Bitcoin to be a successful currency alternative to fiat currencies like dollar, Euro or pound, there should be sufficient amounts to meet the demand from investors who invest in cryptocurrency. Because of the limited supply, it is impossible to know how much supply would be demanded in the future.
2. The Use of Bitcoin as an Investment Asset :
The use of Bitcoin as an investment asset has been increasing over the past two years with its growing number of investors and miners. The value of Bitcoin has increased more than ten times over the past two years. The investment in Bitcoin by the miners is estimated to be more than $10 Billion per year, which is unlikely to deter them from further investments if there is a lucrative opportunity. There are some platforms that help to forecast the value of cryptocurrencies for investors based on other market data like price fluctuations.
3. The Value of Bitcoin as a Store of Value :
The success of cryptocurrencies like Bitcoin, Ethereum, luffy inu and Dash is dependent on the fact that it helps to store value in a digital medium. This would help to mitigate the risks involved with transferring money across the countries. The cryptocurrency helps to store value for investors over time, because there is limited supply of cryptocurrency and hence it is difficult for any central authority to control and regulate its use as a currency. It is clear that there is no significant shortage of supply of Bitcoin and it has a positive demand from investors.
4. The Evidence from Historical Data :
The historical data shows that the demand for Bitcoin has increased over a period of time and it is highly dependent on the supply available at that point of time. The value of Bitcoin has fluctuated considerably over the past few years and it is mostly driven by the demand for alternative cryptocurrencies. The supply of Bitcoin is also highly dependent on the price fluctuations as supply is limited by design.
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