Bitcoin:A 1 Trillion Dollar Bubble Or The Future Of Money?

 Last week Friday, Bitcoin surpassed the 1 trillion dollar market capitalization mark, meaning the cryptocurrency is now in the same club as tech giants like Apple, Alphabet(Google's parent company), and Microsoft. Despite the cryptocurrency's rapid rise in value over the last few months, the jury is still out on whether it is a bubble waiting to burst or the future of money as we know it.

Some experts predict that Bitcoin, which is currently valued at $57 000+ per Bitcoin, will see its value more than double before the end of the year to just over $100 000+ per Bitcoin. Growing institutional interest in Bitcoin has been pointed out as the major contributing factor to the crypto's ascent. Tesla, for example, recently invested a hefty $1.5 billion in Bitcoin. Other major institutions that have embraced Bitcoin in the recent past include Microsoft, VISA, NVIDIA, PayPal, Square, etc.

What gets interesting with Bitcoin, however, is that despite big companies making a bet on it, a very little amount of its market capitalization surge over the last few months can actually be attributed to institutional investments like those of Tesla. The aggregate investment in Bitcoin by major institutions since September 2020 has been a meager $11 billion, which represents only 1.5% of the $700 billion that Bitcoin has added to its market capitalization over the same period. 

The rapid increase in Bitcoin price despite this modest institutional interest is one of the numerous reasons the naysayers consider the cryptocurrency a bubble waiting to burst. The two other reasons for the increase in Bitcoin price make the case for the crypto being extremely overvalued even stronger. The first one is the inelastic supply of Bitcoin.

Due to a stipulation in the cryptocurrency's original source code, there can ever be 21 million Bitcoins that can be mined. As the supply for the cryptocurrency continues to wane, existing holders are now being paid a premium to part with their Bitcoin holdings, leading to a spike in the price. The second reason being purported as a major contributor to the rapid increase in Bitcoin price is the increase in retail investors trading in the cryptocurrency. 

As seen with the GameStop saga a few weeks back, an influx of retail investors as a result of the convenience offered by trading apps like Robinhood can have a significant impact on equity price movements. The same applies to cryptocurrencies like Bitcoin as a result of the convenience offered by crypto trading platforms like Coinbase. At the peak of the "GameStop Revolution", retail investors managed to push the video game retailer'ss share price to a whopping $483 dollars. Today, less than a month later, it is trading at $46.

It is these reasons; overstated institutional interest in Bitcoin, its limited supply, and retail investors' influence on its price — which makes the case for it being a speculative bubble so strong. There is no denying that as a decentralized currency, Bitcoin has the potential to completely revolutionize money but the fact remains that it still has a long way to go before it can get achieve that mandate.

The cryptocurrency's astronomic rise in price should not be confused with how much it is being adopted as a means of exchange. Yes, there is an increase in its adoption but the adoption is definitely not directly proportional to its price. As an investment vehicle, Bitcoin's volatility as a result aforementioned reasons makes it a very high-risk holding which can go either to the moon or down under. As a means of exchange, however, should adoption keep increase among both institutions and everyday people, the cryptocurrency will completely revolutionize money as we know it.