Bitcoin is one of the most expensive cryptocurrencies in the world. Over the years, its price has increased thousands fold. In this article, we explore why Bitcoin is so expensive.
An Investment Vehicle
Bitcoin is the first successful implementation of blockchain technology. There are various types of databases in the computer science industry, and blockchain is one of them.
In 2008 after the housing market crash, which wall street financial companies caused, many were infuriated by the fact that the US government bailed out the companies that caused the crash. However, many homeowners who lost homes due to Wall Street greed received nothing.
As a result, a few unknown people created Bitcoin, the digital money that is open source, limited in supply, and free from treasury department manipulation.
The US government doesn’t earn or produce anything. The main revenue source of the US government is the tax they implement on its citizens. However, each year the US government spends too much money than the revenue it generates by taxing the citizens.
For example, In 2022 alone, the US federal government has a $1 trillion budget deficit. To raise more money to keep the spending on the same level, the US government does two things. One, it sells bonds or also known as debts. Two, it directly prints money which has a fancy name of “Quantitative Easing.” However, nowadays, the treasury department doesn’t effectively print money. It typically manipulates some numbers in their federal account to inflate how much money they have. As of writing this article, the US has $30 trillion in debt.
Each year the Federal government raises around $3 trillion from taxation. However, it spends more than $4 trillion yearly. Therefore, the yearly budget gap is $1 trillion. The US government has to either increase taxes or decrease its spending to lower the debt. However, both of them are unlikely.
Therefore, each year the economic prospects of the US government look grim.
The US government prints more money to fund its spending habit, creating inflation. This inflation is nothing but indirect taxation on people’s savings. Inflation eats away people’s spending power. Previously if something were $10, now, due to inflation, it would cost $12. Inflation caused by governments’ indiscriminate money printing affects the people who worked hard to save.
Therefore, many people don’t feel comfortable holding dollars. Many investors want to diversify their savings and investment. According to many, Bitcoin is a perfect cryptocurrency to hedge against inflation apart from the stock market.
There are hundreds of cryptocurrencies in the market. Bitcoin, however, is the first cryptocurrency that came into existence and had a massive following. Therefore, it gets more press and is more popular. Over the years, many retail investors bought Bitcoin as a long-term investing strategy. As there are more buyers of Bitcoin than sellers, its price has gone up tremendously, and now it’s one of the most expensive cryptocurrencies in the world.
One of the primary features of Bitcoin is that its supply is limited to 21 million.
The creators of Bitcoin were frustrated by the federal reserve because they were printing money to bail out the Wall Street firms and big corporations. This money printing caused inflation and harmed many people. To counter the federal government’s money printing habit, the Bitcoin creators created a cap on Bitcoin.
More than 7 billion people are living on earth. In the US alone, there are 350 million people. However, the number of Bitcoin is limited to 21 million. Therefore, there’s not enough Bitcoin in the world to meet demand.
Over the decade, Bitcoin has become a household name. And every day, more and more people are getting fed up with inflation and rising prices. Therefore, each day more people are getting familiar with Bitcoin. Even though demand is growing for Bitcoin, the supply of circulating bitcoin is limited. Thus, its price is going up, and it’s expensive.
Even though Bitcoin was meant to be a digital currency, it became a tool to hedge against inflation and an investment vehicle over the years. Therefore, nowadays, people buy and hold Bitcoin in hopes that its price will go higher and they will be able to sell them at a profit.
As people are buying and hoarding Bitcoins for profit, it creates more scarcity. As a result, Bitcoin has become expensive.
Even a few years ago, institutional investors weren’t interested in Bitcoin. However, over the decade, the Bitcoins price has increased dramatically. Therefore, these big-money institutional investors have bought billions of dollars of Bitcoin as a long-term investment strategy. Thus, driving up the price even higher.
Hype and Manipulation
Bitcoin has the largest following in the crypto community. Therefore, the hope and hype surrounding Bitcoin are tremendous. Some people genuinely believe that Bitcoin will become the global de facto digital currency replacing the dollar one day.
The stock market revolves around the media press cycle. If more positive news comes regarding Bitcoin, its price typically goes up. During the negative press cycle, its price goes down. As previously stated, nowadays, big financial institutions have invested money in Bitcoin. Therefore, the news hype surrounding Bitcoin is tremendous because these investors will make money only if its price goes up.
Hype, Manipulation, and Scam in the crypto industry are rampant. Sometimes, it’s obvious, and sometimes it’s very subtle. In the case of Bitcoin, the hype and manipulation are very subtle.
Even though many disagree, Bitcoin is effectively a Ponzi scheme.
In a Ponzi scheme, the early investors make money by selling the product at a higher price to new investors. The new investors will make money only if more new investors come into the business and buys the product from them even at a higher price. This is what’s happening with Bitcoin.
Bitcoin is not backed by anything. It was created out of thin air with a programming code. It has no intrinsic value.
Gold, Diamond, Silver, and all other products have value. Even in the stock market, the stocks are valuable because the companies associated with the stock make useful products.
Gold is one of the most precious metals in the world. Not only is it being used to make jewelry, but it’s also one of the crucial elements in electronics and chip manufacturing. However, Bitcoin is intrinsically valueless. It’s not a good currency; it’s slow, not backed by anything, and complicated to use.
The only way to make money off Bitcoin is to sell it to new Bitcoin investors in the Bitcoin market. Even though Bitcoin can be used as a form of money, its use case is very limited due to technical challenges. Therefore, Bitcoins have very uncanny similarities with the Ponzi scheme.
In a Ponzi scheme, the only way to make more money is by luring in more investors to pay off the early investors. Therefore, hype, media press, positive news, and manipulation are essential. The same thing happens with Bitcoin.
As more people come to know about Bitcoin, they buy it in hopes of making a profit in the near future. It’s why Bitcoin is expensive.