Cryptocurrency--a type of digital currency that regulates the units of its currency through computational solutions of mathematical problems while ensuring anonymity between traders -- has been in the center of discussion among investors. Pioneered by one who pseudonymously identifies as Satoshi Nakamoto, Bitcoin, the earliest digital currency to be established, along with many other newly created cryptocurrencies, is yielding colossal returns for inventors. Achieving its peak value of $56,104.10 per coin on February 19th, which is more than a 600% increase compared to March 2020, Bitcoin has indubitably enticed investors worldwide. In fact, in late February, Elon Musk, CEO of Tesla and SpaceX, made his remarks on Bitcoin as he tweeted that “only a fool” would continue investing in federal government bonds. It is also known that Musk invested $1.5 billion from Tesla towards bitcoin, which some argue that Musk’s investment on Bitcoin galvanized a significant portion of investors to take the same action as well, augmenting the golden coin’s value even more.
The prospect of inflation is one of the reasons that is causing investors to purchase cryptocurrency. Rather than pooling money into cash that could potentially decrease in value in the future, some investors may be turning to Bitcoin for safety. This rationale for the investment of bitcoin is quite dubious, however, as Bitcoin suffered a 20% loss to $46,540 by mid afternoon on February 23rd while the BEI (10-year Breakeven Inflation Rate) actually increased 0.24% since January 1st.
Some are proposing a potentially exciting theory for investors who yet to have invested in the coin: cryptocurrency may replace the current dollar and establish itself as a global currency. As large corporations such as Paypal and Tesla have proclaimed their development of purchase methods using Bitcoin, investors anticipate whether bitcoin can prevail as a universal currency. If so, the potential returns of the coin when it does manage to become the world’s main currency is unfathomable. While the theory is undeniably bewitching to investors, skeptics concern the lack of government control with cryptocurrencies ultimately reduce the likelihood of such theory to be realized. With this in mind, many central banks revealed that they are conducting research with scrutiny and experimenting with their own creation of digital currency. To sum things up, while it is true that there is considerable possibility that digital currencies in the future may replace the current dollar hegemony, it is too equivocal at this point to determine if those digital currencies would be privately managed or state-supervised.
As the pandemic is still profoundly affecting the lives around the world, many investors are standing bewildered over the crossroads. Whether or not they choose to take this global criss as an opportunity should be up to the investors themselves. Regardless of anything, it is always crucial to make investments based on rational thinking rather than sentimentally driven impulses for a successful investment.