Where does Bitcoin Stand As An Investment Commodity?

Where does Bitcoin Stand As An Investment Commodity?

When bitcoin first emerged, it was promised as a fully digital currency – and possibly a revolutionary one. Whether or not it’s delivered on these (unofficial) promises is up for debate. On the one hand, it truly is a fully digital, encrypted currency, existing solely in code form. On the other, it hasn’t revolutionized the idea of currency like some once believed it would. As such, bitcoin has become a semi-viable alternative to fiat currency – not a replacement for it.

More interesting than its status as a functional currency, however, may be bitcoin’s potential use as an investment commodity. It has joined the ranks of interesting, and alternative investments including diamonds and pig farms.

Indeed, over the years this has become an increasingly popular (and logical) way to look at the leading cryptocurrency. A couple years ago the U.S. CFTC (Commodity Futures Trading Commission) officially categorized bitcoin as a commodity. Some other countries and financial institutions have taken similar stances, and just recently prominent financial commentator Mohamed El-Erian followed suit, saying simply “it’s more of a commodity than a currency.”

If it’s true that this is how we should be thinking about bitcoin, though, then what exactly does that mean? When we consider bitcoin as a currency, we think of the fundamentals: how do we acquire it, how do we store it, and most importantly, where can we spend it and why would we want to? When approaching bitcoin as a commodity, however – like gold or crude oil – the questions change. Acquisition and storage are still important, but we must also ask what’s happening with the price, what factors influence price movement, and where bitcoin is heading in the future.

Bitcoin’s Price

At the time of this writing, bitcoin is priced very close to its all-time high (which is just over $7,500). That said, the price of bitcoin is worth monitoring on a daily (if not hourly) basis if you’re interested in investing. Because cryptocurrency is still emerging, and has changed so much in a few short years, it tends to be very volatile. Sharp drops and sudden rises are not unusual in the least, though the overall trend for bitcoin throughout 2017 has been sharply up.

Heading into 2017, a single bitcoin was worth just under $1000. That means that if you had bought a bitcoin on January 1st of this year and you were selling it in early November, you could stand to make a $6,500 profit. If you’d bought one years ago, your profit could be over $7,000. Those are fairly ideal scenarios up to this point, but they do illustrate the fact that to this point, bitcoin would have been a wise investment. Just keep in mind that hindsight means very little in any kind of investing, let alone one based on a brand new commodity.

Factors Affecting Change

It’s difficult to truly define the factors that impact bitcoin price movement. The biggest one, however, has to be government regulation. Much of bitcoin’s dramatic spike throughout 2017 has been attributed to a few nations in the Far East easing their regulatory restrictions on bitcoin. However, as one overview of this topic put it, regulation of bitcoin remains a murky grey area in that it can be hard to tell exactly what a given country’s stance is. Some countries outlaw cryptocurrency entirely; some allow for its use, but actively try to dissuade citizens from taking part. In the case of Iceland, bitcoin is even allowed, but only if it originates in the country!

Beyond regulation, you could also argue that basic utility plays a role. That is to say, the more useful bitcoin becomes – via more merchants signing on to accept it as legal tender – the more valuable it is. And beyond these factors, it should also be mentioned that bitcoin’s movement is influenced by its own trends, in that with more people treating it as an investment, patterns and investing strategies are going to come into play.

Bitcoin In The Years Ahead

This is the difficult part. Frankly, it’s impossible to know where bitcoin goes from here, even if you read what the experts have to say. There are some who think bitcoin is only getting started, and that its value will continue to skyrocket in the years ahead. There are others who think it could stabilize around where it’s been on average in 2017, acting as a sort of new age gold in the commodity market. And there are still others who see the current highs as something of an extended bubble, foreseeing a severe crash as initial investors cash out and tank the market. This is simply a reminder to be careful investing in bitcoin and to consider all of the relevant factors.