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Bitcoin: Dust or Gold Dust?


By Shofi Ahmed:

Should you put your pretty pound in bitcoin? Can it be a good investment for us? It’s a question many have in their minds nowadays. Citing that last Thursday, I recommended you to watch a programme on bitcoin. This is an advanced subject. To give advise on it would require one to be proficient at chart reading which comprises sets of basic to very complex tools. And must keep an ear for relevant economic news. I didn’t see the reflection of it when I saw the programme last Thursday night. Therefore, to make my recommendation worthwhile for you, I am writing to shed some light on bitcoin. Though I am not an expert, I will try to do that in a professional manner.

Nonetheless, I applaud the Reality With Mahee team that they have tried their best to show the way forward on the crypto path. That is trending at the moment. Like I said earlier, however, this is an advanced subject and experts aren’t often available to be on board. I am also thankful to a producer who invited me to be a live guest on the programme but I was unavailable.

Is bitcoin worthy for us to invest in? What is its most compelling case? Let’s put it under search light. To start with I would set the bitcoin case in three stages, asset, to find out whether it’s worth to start with, current market, and future direction.

Asset

For peace of mind the first question could be, does bitcoin have an intrinsic value? An intrinsic value of a commodity is a value that a product possesses in itself. It does not require an additional source to provide it with a value. Eg: Sweetness is an intrinsic value of sugar.

Therefore, some currencies that are backed by precious metals like gold and silver have an intrinsic value. However, Bitcoin like major fiat currencies like pound and dollar are not backed by gold or any precious metal. Therefore, not only bitcoin but the pound and dollar too have no intrinsic value.

The fiat currency value is derived from the relationship between supply and demand and the stability of the issuing government. This demand and supply is decided by the participants of the network who are bringing fiat currency into use. Hence, for any money to be established as an exchange of value within a network, it is important for the network to trust it regardless of who (or what) is backing it. In other words, trust is the value.

Then What Gives Bitcoin Value? According to the AiThority an international technology news site, it’s trust where Bitcoin is gaining its value. ‘The trust which millions of people have imparted on a cryptocurrency in a completely trustless environment decides the value of the cryptocurrency. Millions of miners and traders are altogether considered the participants of the Bitcoin network who trust the world’s largest cryptocurrency and are deciding its price on the sole principle of its demand and supply.’

Besides, bitcoin has a value in itself. Its supply is limited as there can only ever be only 21m in existence. Bitcoin can’t be devalued by a government or a central bank distributing too much of it.  Unlike the dollar, the US government continues to print money. Devaluing the dollar, consequently concerned corporates, billionaires, eying for a hedge. Bitcoin is proving to be a hedge against inflation.

For instance when the US, the world’s largest economy, publishes higher-than-expected inflation figures which prompts a fall in US tech stocks and a drop in the value of the dollar. Often it causes a boost for bitcoin. Hence, according to investorschronicle.co.uk the most compelling case for bitcoin is probably as a store of value.

Inflation fears are rising amid enormous stimulus packages that have increased the global money supply. Which is in fact printed money. Therefore demand for a hedge against inflation is on the rise. Hopefully now you can see where bitcoin’s strength lies.

A guest on the show demonstrated his point by showing a £50 note that it’s value is synonymous but bitcoin has no value. Because its value can change drastically. Well, compared to £50 bitcoin can change significantly. But the change is not baseless, chaotic is predictable. This is where the need for chart reading arises. We will look at it next on the market stage.

What’s more, bitcoin is far more secure than the £50 note. There are fake £50 notes on the market. But there is no fake bitcoin. It’s technical makeup is so solid no one can copy it. The hackers can steal millions away from banks. But even if they try collectively they won’t be able to make a duplicate of bitcoin. Nor anyone can double sell a bitcoin. What a phenomenal brilliance of technology makes such an unchanging, immutable entirety!
In The Bitcoin Standard, regarded as the first bitcoin book people should read, author Saifedean Ammous argues that bitcoin’s decentralised immutable monetary supply makes it the best store of value that humans have created.

Perhaps now we can move onto the next stage, the current market of bitcoin, finishing on a positive note. That bitcoin has value, in fact huge potential value. It’s still in its early stage. Big things can move in slow motion for wider adoption across the board. Perhaps thus Each bitcoin is divisible into 100 millions satoshis, helping to grow through smaller units of account as the value appreciates.
The Current Market (Stage II)
Last year on 7th of June 2020 the price of bitcoin was $9,677. Early this morning as I am writing on 7th June 2021 the price is $36,185. It’s up almost 400 times in a year even though it recently slid down from it’s all time high at almost $65K. What we need to know is that when it goes up and down there are reasons behind it. It doesn’t happen out of the blue. Sometimes there are exceptions.

Like it doesn’t rain all of a sudden. Then sometime it can happen. This is usual. Generally, however, before raining the cloud forms, it floats, eclipses the blue sky, then winds get sniff of it as it starts to pour down. Similarly, the price of the high volume cryptos like bitcoin as like pound and dollar just don’t go up or down. First it changes from bound ranging to a trend. While it does it, it makes patterns on the chart of its new direction.

There is an uptrend and a downtrend. So if you know the weather forecast, you might anticipate whether you will be waking up on a raining or shining morning tomorrow. Likewise if you read the bitcoin chart well. You can anticipate whether you are waking up to see in the morning your £50 bitcoin is worth less or much more. There is a high probability to see that it’s gone up in uptrend and down in downtrend.

Since it can sway either way up or down the challenge is to anticipate the direction reading the chart and major news. So it doesn’t matter which way it takes. You can sell on downtrend and buy on uptrend.  Thus unlike the fiat £50 your £50 in bitcoin will make you money. Up or down, let it choose it’s path. That is a great business opportunity.

Those of us are not familiar with charts, to be honest it’s not an easy ride, hopefully, it makes better sense now. As experts say, without having good knowledge of the chart and its pattern, a trader will never be able to trade according to his needs. For bitcoin it has notoriously high volatility. Yet, the sign of it can be seen on the chart beforehand. That makes it manageable.

For example, when it recently crashed from close to $65K a bearish divergence pattern formed on Bitcoin’s weekly time frame. Indicating weeks of downside lying ahead which turned true. Traders that sold then, made huge returns. And traders invested billions too. By buying the dip, what savvy investors do. They buy when the price goes down when others might sell or stay away out of fear.

Future Direction (Stage III)
Bitcoin price dropped significantly over the past 24-hours, following the news of tighter U.S. monetary policy and China’s ongoing pressure on crypto miners. Although the uptrend has notably weakened over the past few months, the world’s largest cryptocurrency by market value is still up about 11% year to date. Experts think the price could continue to go down before it bounces back.

What’s to look for, as it’s often said no one has the crystal ball to predict the direction. Then again the usual patterns reflect on whichever way it takes its turn. Meaning it’s not chaotic, the history repeats in the crypto space too. So there are ways to identify probable moves. Doing that maths majority of the expert chart readers believe that bitcoin will resume it’s uptrend again. It will regain it’s all time high at nearly $65K. Then it will make new highs like it did before. It wasn’t an easy rise for the lead crypto. It had to weather

diverse climates on it’s way up.

For instance, Elon Musk, the world’s second richest man, invested one and half billion dollars in bitcoin. After some weeks, he went on to tweet that he will accept bitcoin for payments of his Tesla car sales. These shoot up the price of the coin. Then on the very same day when the US government announced printing of huge money. The US stocks and dollar value fell. Theoretically, it means an up for bitcoin price but it fell down instead. As Elon Musk sent a bearish tweet that he is withdrawing bitcoin as a payment method for Tesla cars over climate concerns.

There were mixed reactions in the market. Some say, “how can you not accept a form of payment for ‘environmental issues’ yet hold it as an asset for company profit? It’s a pretty conflicting message”. “Just another way to push the coin down, then buy low and retract the statement.” Truth is bitcoin is designed to become harder to mine as more coins are produced so the cost in power and therefore the value goes up.
Probably we can see a clear picture now. Bitcoin is a big play and certainly not easy if you are not on the chart. One can make some surprise profit now and then this can be a one off fluke, hotath bristi in Bangla. For a credible ROI return on investment there is a learning curve. It’s necessary to learn it before boarding a crypto ship seeking high return. Finally I am, or Bangla Mirror, is not a financial adviser. This is for educational purposes only.