How Stocks Are Valued
The calculation of a specific share price is extremely complex, diving into a plethora of factors, algorithms, and formulae like P/E ratios, market cap, dividend discount models , and more.
Whats easier to grasp are the factors that go into these formulae and affect share prices on a daily basis. These often include company performance, supply and demand, dividend announcements, management performance, the global economy, the local economy, market players and competition, patent approval, speculation, government regulation, activity from fellow investors, and public perception.
And many, many more. Now, although the list of factors driving share prices is long, diverse, and complex on its own, many of the factors are measurable and predictable.
By being able to somewhat predict the future performance of a stock, investors are able to design what are known as asymmetric risk profiles meaning they can stack the cards in their favor. Ever wonder why despite the volatility of the stock market, your retirement account tends to consistently provide 7% returns each year? Thats because some smart person has invested your money using an asymmetric risk profile rather than win or lose big, they win a little bit every single time.
What Is Bitcoin Backed By
Fiat currencies are valuable because they are backed by national and supranational organizations. The US Dollar or Euro have value as currencies because their purchasing powers are guaranteed by the governing organizations that have control over entire economies. Different currencies have different values but a currencys value reflects the overall economic well-being of a state.
Currencies typically represent purchasing power. They can be used to store value to use for different purposes. The more stable a currency is, the stronger its capacity to protect its worth over a long period of time. The same idea is also true for assets: real-estate and art have good long-term store value because their worth doesnt typically vanish over time. Another asset that has a great store of value is gold. Gold has a reputation for being a stable and durable asset that investors can take advantage of during especially turbulent economic stages, because it is always valuable.
Bitcoin enthusiasts think the digital currency is most closely associated with gold out of all asset types. Gold doesnt have intrinsic value but it is still valuable because it is a rare commodity that people accept as valuable. Like gold, Bitcoin also has a limited supply which means that in theory, it is possible for Bitcoin to become a gold-like asset for storing value over long periods of time. This is what most Bitcoin enthusiasts think the asset is headed for.
Bitcoin As An Alternative Global Currency
Linked to its reserve currency status and its standing as a store of value is one additional characteristic of bitcoin that could see it become a global currency.
That characteristic is its value as a programmable asset. Unlike our legacy financial infrastructure, which has accepted some workarounds to function in the new digital age, bitcoin is natively digital and has shed the constraints placed on finance by the physical world.
We now have the very first programmable asset in history.
Here are two examples of bitcoin features that make it eminently suitable as a global currency: time-locked transactions and multi-signature transactions.
- Time locked transactions allow bitcoin to be sent to an address with the instructions not to allow it to move from that address until some predetermined point in the future.
- Multi-signature transactions allow bitcoin to become locked in an address until two-of-three or four-of-seven people agree it can be moved.
This value as a programmable asset has the potential to lead to mass adoption, and mass adoption could lead to bitcoin being used as an alternative global currency without boundaries.
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Big Companies Are Buying Bitcoin
BNY Mellon, which can trace its roots back to the 18th century, is the latest big name to adapt to the world of Bitcoin. The financial services giant plans to help its asset-management customers utilize Bitcoin, essentially treating it like any other security. Meanwhile, Mastercard said it would process Bitcoin payments on its network in an effort to give businesses and customers more choice in how they buy things.
Note that Elon Musks infatuation with the digital currency is nothing new, and it jibes with his affinity for unconventional investments and ideas.
Bitcoin is my safe word
In its annual report, Tesla said it added $1.5 billion in Bitcoin as part of a larger policy to earn more on its cash that it doesnt need to keep the company going. This alternative reserve will also look into gold bullion, gold exchange traded funds , and potentially other assets in the future. The company, which is valued at slightly less than $900 billion, also said that it plans to begin taking Bitcoin as payment in the near future.
Todays move higher appears to be driven in large part by speculative buying. The irony is that speculation could undermine the interests of Tesla and Mastercard in using Bitcoin as a medium of exchange. One reason we use dollars is that we dont expect the value of one dollar to rise or fall 14% on any given day. Why use Bitcoin to buy goods and services when its value fluctuates double-digits on a regular basis?
Bitcoin Is Getting Crushed What Is Bitcoin Really Worth
What is one bitcoin actually worth?
Bitcoin, the worlds most known and traded digital token, has now lost more than 40% of its value since touching nearly $70,000 in November. In early trading Friday, it once again dipped below $40,000, down about 8%, with Ethereum, Solana, XRP, and other digital currencies in hot pursuit.
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Isn’t Speculation And Volatility A Problem For Bitcoin
This is a chicken and egg situation. For bitcoin’s price to stabilize, a large scale economy needs to develop with more businesses and users. For a large scale economy to develop, businesses and users will seek for price stability.
Fortunately, volatility does not affect the main benefits of Bitcoin as a payment system to transfer money from point A to point B. It is possible for businesses to convert bitcoin payments to their local currency instantly, allowing them to profit from the advantages of Bitcoin without being subjected to price fluctuations. Since Bitcoin offers many useful and unique features and properties, many users choose to use Bitcoin. With such solutions and incentives, it is possible that Bitcoin will mature and develop to a degree where price volatility will become limited.
What If Someone Bought Up All The Existing Bitcoins
Only a fraction of bitcoins issued to date are found on the exchange markets for sale. Bitcoin markets are competitive, meaning the price of a bitcoin will rise or fall depending on supply and demand. Additionally, new bitcoins will continue to be issued for decades to come. Therefore even the most determined buyer could not buy all the bitcoins in existence. This situation isn’t to suggest, however, that the markets aren’t vulnerable to price manipulation it still doesn’t take significant amounts of money to move the market price up or down, and thus Bitcoin remains a volatile asset thus far.
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Bitcoin Is Too Big To Fail
Bitcoin’s creator, Satoshi Nakamoto, didn’t want to help Wikileaks because he knew that the US Federal government could to easily crush the fragile monetary experiment. Nakamoto preferred that bitcoin stay below the mainstream radar until it amassed more nodes worldwide.
In 2020, there are over 10,000 bitcoin nodes in 100 countries. As a result, it’s nearly impossible to pull bitcoin’s plug. If 20 countries attempt to close all their bitcoin nodes , the bitcoin network will keep humming along with the thousands of nodes in other countries.
Think of bitcoin like an operating system . Popular operating systems attract a massive ecosystem around them. Network effects reinforce the utility of the operating system. The more apps get developed for the operating system, the more people want to make sure that the operating system stays healthy and keeps improving.
Bitcoin, which has a market cap of $150 billion, has given rise to a massive industry. Armies of software developers are feverishly developing applications that use bitcoin. Venture capitalists have invested billions in bitcoin-related projects. It’s now a beast that’s hard for the government to tame.
Bitcoin in 2020 feels like the Internet in 1995. It’s beyond the infancy stage, but most people still haven’t dipped their toe in it. Still, the network is building out.
Of the roughly 750 currencies that have existed since 1700, only about 20% remain, and of those that remain all have been devalued. – Ray Dalio
Bitcoin Mining Involves Solving Complex Mathematical Puzzles
If you want to mine Bitcoin, you also need special hardware designed with the correct algorithms. The mining process works by solving incredibly intricate mathematical problems. Whoever solves the puzzle first adds a block to the Blockchain and earns approximately 6.25 bitcoins . For some perspective, at the present worth of Bitcoin, 6.25 coins are worth roughly $367,689. You can see why mining Bitcoin is so popular and why so many people consider investing in cryptocurrencies.
However, solving these complex puzzles is no cakewalk otherwise, everybody would do it. It takes massive amounts of electrical and computational power and software specifically designed for Bitcoin mining. However, with the cost of electricity soaring, you most likely wont earn enough money to turn a profit, even if you have a top-notch mining rig. Thats why many people are considering investing in Bitcoin by purchasing it, which is much easier.
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Bitcoin Cash Vs Bitcoin: Where Can You Buy Them
One of the most popular exchanges to buy both Bitcoin and Bitcoin Cash is Coinbase.
On this platform, you can use fiat to buy popular cryptocurrencies through your credit card, bank account and more. Unfortunately, Coinbase is only available in 32 countries:
U.S.A., Canada, UK, Switzerland, Sweden, Spain, Slovenia, San Marino, Portugal, Poland, Norway, Netherlands, Monaco, Malta, Liechtenstein, Latvia, Jersey, Italy, Ireland, Hungary, Greece, Finland, Denmark, Czech Republic, Cyprus, Croatia, Bulgaria, Belgium, Austria, Australia and Singapore.
UPDATE 2022: Coinbase is currently available in more than 100 countries.
If you use a broker that doesnt sell BCH but sells BTC, you can always buy Bitcoin and exchange it for Bitcoin Cash on a trading platform like Binance.
The final and the easiest way to purchase BTC and BCH with your credit card is via Simplex – fraud-free online processing.
Things To Consider Before Investing In Bitcoin
Like any investment, cryptocurrency comes with risks and potential rewards. Compared to traditional types of investments, cryptocurrency is particularly risky.
Here are some things to think about before you invest:
- We dont recommend investing all your life savings on cryptocurrency markets
- Its best to see it a bit like gambling so only invest small amount of your disposable income and be prepared to lose the lot
- Never invest more than you can afford to lose dont just think about the short run
- If you havent got much money left at the end of each month, its best to steer clear of crypto and focus on saving your money instead
Weigh up the pros and cons first:
Pro: Cryptocurrencies are global, meaning they have the same value in every country and no exchange rates.
Con:Cryptocurrencies are extremely volatile, subject to bull runs and market crashes,and so are a very risky investment. People have also reported having to wait to get their cash out because of technical snarl-ups.
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Is Bitcoin Fully Virtual And Immaterial
Bitcoin is as virtual as the credit cards and online banking networks people use everyday. Bitcoin can be used to pay online and in physical stores just like any other form of money. Bitcoins can also be exchanged in physical form such as the Denarium coins, but paying with a mobile phone usually remains more convenient. Bitcoin balances are stored in a large distributed network, and they cannot be fraudulently altered by anybody. In other words, Bitcoin users have exclusive control over their funds and bitcoins cannot vanish just because they are virtual.
How Does Bitcoin Work
From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.
Behind the scenes, the Bitcoin network is sharing a public ledger called the “block chain”. This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called “mining”. To learn more about Bitcoin, you can consult the dedicated page and the original paper.
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How Does Bitcoin Supply Affect Its Price
Since Bitcoins introduction in 2009, its bitcoin supply has been diminishing. Every four years, the cryptocurrency undergoes a halving event during which miner rewards are reduced by half on average. The decline in supply corresponds to increasing demand due to news media coverage and its price volatility. A combination of shrinking supply with a boost in demand has resulted in surging bitcoin prices.
How Can I Buy Bitcoin
These days, getting your hands on some bitcoin is as easy as downloading a smartphone app. Bitcoin can be purchased on a wide variety of platforms, including popular stock trading app Robinhood, and dedicated exchanges like Coinbase and Gemini.
Despite its $50,000 price tag, you can begin investing in crypto with much less. Unlike the dollar, which can be divided into 100 pennies, a bitcoin is divisible into 100 million units, called satoshis. You can purchase $10 worth of bitcoin just as easily as you can purchase an entire coin.
It’s not just bitcoin that is available on crypto exchanges. Other currencies, such as Ether and Litecoin are also popular, but neither come close to approaching the nearly $1 trillion market cap that bitcoin commands thanks to its meteoric rise in price over the past year.
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What Is Bitcoin Mining
Mining is the process of spending computing power to process transactions, secure the network, and keep everyone in the system synchronized together. It can be perceived like the Bitcoin data center except that it has been designed to be fully decentralized with miners operating in all countries and no individual having control over the network. This process is referred to as “mining” as an analogy to gold mining because it is also a temporary mechanism used to issue new bitcoins. Unlike gold mining, however, Bitcoin mining provides a reward in exchange for useful services required to operate a secure payment network. Mining will still be required after the last bitcoin is issued.
The Case For Bitcoin $10000 And Why Its Probably Wrong
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An artist paints a Bitcoin mural at the North American Bitcoin Conference in Miami, held earlier this year. Wall Street sees various scenarios for the largest crypto.
Bitcoin investors may be breathing easier now that prices, which slumped to their lowest level in months, have recovered. But the cryptocurrencys next move is only getting murkier.
Crypto markets have turned more volatile and tightly correlated to equities as investors try to gauge the impact of rising interest rates and the Federal Reserves stricter monetary policies. Technical analysis has proven largely futileBitcoin prices have blown through both support and resistance levels over the past few weeks, defying chartists…
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Are Cryptocurrencies A Good Investment
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
Thats whats called the greater fool theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation.
For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability.
Some notable voices in the investment community have advised would-be investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared bitcoin to paper checks: It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?”
» Learn more: Is bitcoin safe?
This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?
How Much Will The Transaction Fee Be
Transactions can be processed without fees, but trying to send free transactions can require waiting days or weeks. Although fees may increase over time, normal fees currently only cost a tiny amount. By default, all Bitcoin wallets listed on Bitcoin.org add what they think is an appropriate fee to your transactions most of those wallets will also give you chance to review the fee before sending the transaction.
Transaction fees are used as a protection against users sending transactions to overload the network and as a way to pay miners for their work helping to secure the network. The precise manner in which fees work is still being developed and will change over time. Because the fee is not related to the amount of bitcoins being sent, it may seem extremely low or unfairly high. Instead, the fee is relative to the number of bytes in the transaction, so using multisig or spending multiple previously-received amounts may cost more than simpler transactions. If your activity follows the pattern of conventional transactions, you won’t have to pay unusually high fees.
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