2020 Bitcoin arrogance: price increase 224%, defeating all skepticism

In 2020, once again the world’s largest digital currency – Bitcoin – makes skeptical commentators pity to admit they are wrong. Now is the time to accept Bitcoin will not dissipate as soon as predicted, even with very intense vitality.

Believers in Bitcoin consider the price crashes not braking just “shallow wounds” that do not cause much pain, but on the contrary will drive the price to rise even more. The 80% discount is welcome as a buying opportunity. And since the beginning of the year, Bitcoin has risen by 224%, reminiscent of the 2017 craze.

The constant supply of 21 million (which is expected to be reached by 2140) is one of the most often given reasons for arguing prices will inevitably increase. However, that is not enough to guarantee a sustainable price of bitcoin in the long term. Historically there have been so many artificially limited assets that the Ponzi scams are a prime example.

What makes it so successful is how investors react to drops. Bitcoin can be considered as an asset designed purely based on the theory of greater foolishness (Greater Fool Theory – the theory that it is possible to make money by buying securities, whether they are overvalued or not, by selling them to the more fool), which in most cases will never recover. But that’s not true for this coin.

Considering its role as a means of payment, basically Bitcoin has not made any significant progress. This coin is also very far from being widely used as a currency.

Since Bitcoin’s market value hit $ 1 billion in March 2013, the coin has had two record peak cycles, all after halving the amount of bonus miners receive and before losing 80% of the value. The first cycle could still be considered normal, the second cycle could be a coincidence. However, with the dichotomy taking place in May 2021 and the cycle repeating again, it can’t be considered a coincidence anymore.

Like social networks, the value of cryptocurrencies depends greatly on the number of users. It is possible to build a social network of equal or even better quality than Facebook, but it is very difficult to achieve this scale.

Cryptocurrencies are still a speculative asset and it takes a lot of factors to confirm that their value will last over time. First, the level of price volatility needs to be reduced and there should be a close relationship with inflation. However, if you bet against the scenario of Bitcoin recovering from the upcoming plunge, you would be against history. And the strong vitality of Bitcoin is the most valid reason to convince investors that this currency will eventually become a great store of value.

Consult Bloomberg