Capital Properties FX
Capital Properties FX

What is Bitcoin – A Digital Cryptocurrency or Just an Asset?


Many answered saying it is a currency, i.e., digital cryptocurrency, others have said it is a digital asset, some have defined it as securities, etc. In this article, we present a well-balanced perspective of Bitcoin as an asset or just a cryptocurrency.

What Is a Cryptcurrency

What is Cryptocurrency?

It is a digitally encrypted currency which functions on the strength of the blockchain (a public ledger that records transactions). In the last ten years, the world’s financial system experienced several changes from the global economic crisis in 2008 to the rise of the cryptocurrency industry.

Although e-payment solutions existed, i.e., PayPal, Payoneer, Western Union, etc., however, Bitcoin presents an entirely different perspective to money. With Bitcoin value at $7,952 with an all-time high of $20,089 according to CoinMarketCap and increased adoption, cryptocurrencies are here to stay.

Bitcoin as an Asset

An asset is anything that has economic value, either tangible or intangible. As a decentralized currency, Bitcoin’s value depends on its users.

What Is Bitcoin

Digital elements have two fundamental characteristics, namely, intrinsic and extrinsic value. The former is the reason why it is classified as a profitable asset.

The latter are other options which contribute to its overall worth. Bitcoin is a cryptographic element, thus secured (intrinsic value) and the immutability of the blockchain is an extrinsic value among others.

Classified as an asset, it has value as seen on crypto exchange platforms. Users on these platforms bought and sold the token as a trusted asset.

Following a meteoric rise to $20,000+ in December 2017, early investors have over 20000% when it was less than $100 in 2013. As a trusted token, exchanges choose Bitcoin as its trading pair against all other cryptocurrencies. Bitcoin currently has a market cap of $141 billion.

Valuation

Bitcoin is unregulated. Thus, it is essential to know how to value it as an asset. The following factors determine the value of Bitcoin:

  • Supply/Demand: The demand for Bitcoin against its supply determines its value. First, Bitcoin is a P2P based asset. Therefore, its value is dependent on the buyer/seller.
  • Exchanges: Bitcoin has an actual value on an exchange. Examples are Bittrex, Blockchain, Bitmex, Binance, BitFinex, Coinbase, etc. Also, its value is on CoinMarketCap website. Kindly note that Bitcoin value on an exchange is only peculiar to trades recorded on it; thus, the price on others might differ.
  • Regulations: Following recent Bitcoin price upsurge and several exchange hacks, several countries seek to regulate Bitcoin. This factor affects the price of Bitcoin in Fundamental Analysis.

Bitcoin as a Digital Cryptocurrency

Currency is a system of money usually defined by the government of a nation. Examples of fiat currencies are Dollar, Euros, Yen, Pound, etc.

Satoshi Nakamoto described Bitcoin as a coin in his whitepaper. Unlike fiat, Bitcoin is decentralized, and people and not the government regulate its price.

Bitcoin as an Asset

To classify Bitcoin as a currency, it must have the following characteristics.

  • Acceptance: Since it is not a government-backed currency, Bitcoin’s trust rests in its users. From an initial value of about $0.0023, its price is now within the $7500 – $8000 price range. Bitcoin is a currency for paying for goods and services. Several merchants and individuals accept Bitcoin, e.g., Microsoft, Overstock, Shopify stores, CheapAir, etc.
  • Portability: Bitcoin is portable, and it is easily transferable from one account to another via the blockchain.
  • Durability: It is durable and permanent because every transaction made on the blockchain remains unaltered.
  • Divisibility: Bitcoin is divisible into units. The smallest value used for a transaction is 0.00000001 BTC.
  • Scarcity: There is only going to be a maximum supply of 21 million Bitcoin tokens with 17 million BTC presently in circulation.
  • Stability of Value: Bitcoin is a volatile currency. Measured against fiat, the price of Bitcoin fluctuates. However, the value of 1 BTC is the same.

Bitcoin vs. Alt Coins

Bitcoin is the King of cryptocurrencies. With an estimated market cap of $141 billion, it has a 55.5% share of the crypto market.

Digital Asset

Other cryptocurrencies in the ecosystem are alternative coins, short form for altcoins and they have different use cases. For instance, Tether is a stable coin, Ethereum enables smart contracts, Ripple is used for interbank settlement, etc.

They are listed on crypto exchanges and traded against each other for profit.

Legal Proceedings on Bitcoin; An Asset or a Digital Cryptocurrency

On the 22nd of May, 2019, an Israeli Court declared Bitcoin as an asset and not a currency. The court further posited that profits made on Bitcoin are taxable. On the other hand, a U.S. Federal District Court in Michigan declared Bitcoin as legal money as revealed by Stephen D Palley, a Washington D.C. based lawyer.

Digital Cryptocurrency

Therefore, it is safe to say that Bitcoin possesses the characteristics of an asset and a currency.

Crypto Trading and Investment

It is the trading and exchanging of crypto tokens for fiat or assets. Crypto exchanges invented online trading solutions to make transactions secure. Therefore, to start trading, open an account with a trusted exchange to keep your funds.

Few Things to Know in Cryptocurrency Trading and Investment

Technical Analysis

It deals with the careful cryptoanalysis of the market using indicators, reading Bitcoin charts, knowing when to buy and sell, and understanding market psychology. It is essential to understand the trends in trading. As we know, Bitcoin is like the King of cryptocurrencies, and as a Bitcoin trader, you must be a market strategist to know when to exit a trade.

Cryptocurrency

There are advanced methods to employ to carry out a technical analysis which includes the use of:

  • Japanese Candlesticks: Most exchanges offer charts for users to study. On it, there are red and green candlesticks. The former signifies a reduction in price, and the latter means Users can determine market trends by studying these candlesticks and their movement.
  • ELLIOT Wave Principle: This principle involves studying the chart using different time frames, i.e., 1hr, 1day, 7days, 1month, and 1year. Depending on the strategy employed, crypto day trading involves using the 1hr or 1day time frame. Here, the user studies the market wave count before making market decisions.
  • Fibonacci Levels: This method acts on the waves to determine support and resistance levels.
  • RSI/STOCHASTICS: These are oscillators used to assess the strength of a trend. Used to calculate if a token is oversold (or undersold). This method also helps to speculate price corrections on the chart.

Fundamental Analysis

This is the analysis of the characteristics of a cryptocurrency, news, and development. News and rumors affect the price of traded assets hence the famous saying “Buy the rumor, sell the news.”

Any information that influences the positive development of a token tends to lead to an increase in value and vice versa. Information about events is on popular Crypto forums or news site like BitcoinTalk, CoinMarketCal, CCN, etc.

Conclusion

As the cryptocurrency ecosystem continues to gain global traction, more cryptocurrencies would be invented to serve different use cases. For instance, Facebook Inc. will release its coin called ‘GlobalCoin’ (now Libra).

However, Bitcoin attained a status that makes it different from others. It acts as an asset, currency, commodity, or security, depending on its use.