Back at the beginning of twentieth century, a gentleman named Joseph C Wilson started a company named Xerox Corporation in Rochester, New York, United States. The company gained expertise in manufacturing the photostat machines. Such was the impact of their machines that over time, photostat word was used interchangeably with Xerox.
A century later, as the world moved on to Industry 4.0, the players and the products of the game changed, but the playbook remained the same. Started in 2009, Bitcoin has now gradually become synonymous with cryptocurrencies. What is now known as the world’s largest cryptocurrency or digital asset, is worth US$749.83 billion. At its peak, the digital currency touched the value of US$1 trillion, catapulting it to the league of big tech companies like Apple Inc (NASDAQ:APPL), Microsoft Corporation (NASDAQ:MSFT) and Facebook Inc (NASDAQ:FB).
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In just past five years, the prices of bitcoin have defied the market logic – it has outperformed both safe havens as well as the riskier assets. It has given returns, both in the times of slowdown as well as boom.
And the returns have not been normal: in the last five yesrs, bitcoin prices have surged by an eye-popping 5,385%. This translates into a compounded annual growth rate of 123% every year for half a decade. Many have argued that the cryptocurrencies have followed the “greater fool principle” of investing. That is, till the time you have a greater fool ready to buy the asset from you, you are investing in a good asset – whether it will have an asset backing or not.
Even as meme-cryptocurrency Dogecoin has outshone bitcoin in 2021, thanks to tailwind tweets from Tesla Inc (NASDAQ:TSLA) CEO Elon Musk; however, despite all this, the curiosity over the cryptocurrencies has increased with time.
So, what is a cryptocurrency?
To put it in the simplest of the terms possible, cryptocurrency is a digital medium of exchange. The ownership of the individual cryptocurrencies is maintained in a computerised ledger using strong cryptography – a technique used for a secure communication. Once it is implemented with decentralised control, every digital currency works through distributed ledger technology, typically called a blockchain – which essentially serves as a public financial transaction database.
What is Bitcoin?
A decentralised digital currency, bitcoin is operated without a central bank or single administrator. It eliminates the need for intermediaries such as banks as they can be sent from one user to another on the peer-to-peer bitcoin network. Conceptualised by Satoshi Nakamoto – a presumed pseudonym aimed at hiding the actual identity – bitcoin started being operational since 2009. Once ridiculed, bitcoin has, over past 12 years, become one of the most talked-about financial assets.
If I invest in Bitcoin now, where do I see myself in 2025?
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The prices of Bitcoin are very volatile in nature – multiple times volatile than the stock markets in recession times. And the volatility of the cryptocurrency is not confined to the recession times. Even a tweet from influencers – like Elon Musk – would send the prices of bitcoin, or any other cryptocurrency, surging or tanking. So, it would be very difficult to predict the return on the cryptocurrency over the next four years. In 2019, bitcoin grew 97%, in 2020 it surged 516% and in 2021, on a year-to-date basis, it has surged 38%. So, we can see there is no fixed pattern in its growth. However, of late, the acceptability of bitcoin has grown and it can even be purchased at grocery stores using the Coinstar machines.
The institutional participation has increased in the past few years and if the same trend continues many analysts are of the view that bitcoin prices can continue to move up. On the bullish side, a section of the market analysts expects the bitcoin price to trade in a wide range, lower range being US$275,000 and higher range being US$1 million by the end of 2025. For the seasoned followers of bitcoin, this sort of price range should not come as a surprise, at least going by the past volatility.