What is Bitcoin? Depending on whom you ask, the answer could be a crypto- or digital currency, an asset class, a commodity or a software program. We like the software definition best — it is a piece of opensource software (computer program) made up of a set of digital protocol (rules).
This article was written in response to a question by 21-year-old student Cherine, who wanted to know whether it was safe to invest in cryptocurrencies. Will the price of Bitcoin hit US$1 million ($1.3 million) this decade? It is possible. We say this not because we are believers in the world’s foremost cryptocurrency, but because Bitcoin is a purely speculative asset. It generates no earnings or cash flow — therefore, there is no maths behind its valuation. In other words, Bitcoin has no underlying value. Its price is what the next person is willing to pay, driven by sentiment. Therefore there is no limit as to how high it can go, US$1 million or any other number, really, or how low, even zero.
Not surprisingly, there is significant controversy surrounding Bitcoin. And, we suspect, this is part of its appeal and why prices have surged in the last few months. Controversy keeps it in media headlines and attracts ever-growing attention — whether it is Elon Musk tweeting Tesla’s US$1.5 billion purchase of bitcoins or Warren Buffett calling it a “mirage” that he will never own.
