On January 16, the entire crypto market started going through a severe correction. Today, on January 17, the prices of the majority of the top-100 coins listed on the Coinmarketcap.com keep plummeting, and bitcoin is not an exception.
Today, by the time of writing, it dropped as much as 14% to a low of $10,336. This might seem a shocking result as just precisely one month ago bitcoin surpassed the historical margin of $20,000 per unit. Before 12 PM UTC bitcoin broke its anti-record in 2018, reaching the low of $9,958, according to the Coindesk.
Another terrific drop occurred on January 16. BTC just within 1.5 hours plunged by over $1,400, and after a few hours reached the rate of $10,064.
Several factors could have triggered such a decline in the crypto market, e.g., China’s, France’s and South Korea’s curbing on crypto trading. Anyway, some skeptics believe that bitcoin’s price is driven only by speculation and the coin itself doesn’t have any value. Are they right?
Assessing Bitcoin’s Value
According to CNBC, economists consider an object valuable in case scarcity and utility can be applied to it.
Simply speaking, scarcity is when the object has a limited supply. Satoshi Nakamoto, when creating bitcoin, bounded the coin’s supply to the limit of 21 million units. It means that there will never be mined more than 21 million bitcoins.
By the way, recently, on January 13, there was mined 80% of bitcoin’s supply. Therefore, miners should brace for tough times as in two years their rewards will be halved as it will be more complicated to mine the other 20% of bitcoin.
And that’s why lots of experts suppose the price of BTC will increase exponentially as the number of remaining bitcoins to be mined decreases. So it’s possible that bitcoin will be even more sought-after than other valuable objects, including gold. That’s because there will never be crypto ‘Gold Rush’. Meanwhile, thanks to technologies, gold is easily mined today more than ever before, said blockchain analyst in San Francisco Ben Yu:
"Today we mine gold at four times the rate that we did just 100 years ago."
Lots of bitcoin supporters believe that its value lies in its technological peculiarities which no other goods on earth can offer:
- Decentralized nature.
Nobody like banks or authorities control BTC; it cannot be keeled over by the supreme corruption.
- Available for sharing out.
One can purchase small items, using bitcoin. And that will be as easy as to buy a large house; there’s no difference for BTC.
- Open source code.
Bitcoin’s is built on the open source code. Thus, anybody can get familiar with it, analyze it and even improve it.
Nevertheless, none of these features is vital, as skeptics argue. On the other hand, gold is more valuable as it can be utilized in such spheres like electronics and dentistry. As fun as that sounds, some may argue that even dollar bills are much essential as they can be used for writing on or for firelighter. But if taken seriously, these statements don’t really prove gold’s and fiat money’s value.
To show it, here are some data from the World Gold Council and US Federal Reserve. Two years ago only 15% of the gold was applied in industries, whereas it costs just $0.16 to produce a $100 bill. Therefore, both gold and fiat money is as valuable, as people believe that they are so. The same attitude can be applied to cyber money. Ask baby boomers whether they would pile into BTC, you’d rather hear no. But the answer will be different if you ask millennials.
So What is Bitcoin’s Value?
Besides people trusting BTC’s value or not, here are two principal theories that are applied for calculating the price of one BTC.
According to this theory, bitcoin may entirely replace gold or at least its fraction. In case BTC replaces gold completely, one coin would be worth of $357,000, according to CNBC. But if it substitutes only 5% of gold, which may occur in five years, one BTC unit will be worth of $25,000.
The second theory lies in Metcalfe's law. According to it, the value of an object depends on how much it is adopted by people. For instance, there is no use in a phone if you are the only person using it. But it makes sense when other people possess phones. Hence, you can use your phone to communicate with them and vice versa. Studies have shown that this law applies to Facebook. The same pattern works for bitcoin, according to Fundstrat.
In conclusion, BTC is scarce, and lots of people find it useful as it is helpful for earning gains and exchange them. So maybe all the bubble talks just don’t have back-up anymore?
Charts Sources: coinmarketcap; coindesk.