Bitcoin – An Economic Phenomenon or Illusion

Bitcoin has been a hot favorite topic these days. First launched in 2009 by Satoshi Nakamoto, the identity of whom remains unknown, Bitcoin has now become the most popular digital currency in the world, widely accepted by many large companies. They include, among others, Microsoft and Subway. The initial value of one bitcoin was 8 cents. Over the past 8 years, its value has grown exponentially to an all time high of over $19,000 in December 2017. Individuals who wish to learn more about Bitcoin has a couple of options which include taking economics tuition from an experienced economics tutor. Mr. Edmund Quek is a reputable and experienced economics tutor in Singapore who has years of experience coaching both students and working adults in economics.

What is behind the phenomenal growth in value of this digital currency? Is it market forces or speculative activities at work?

Market Forces

You must have heard about Adam Smith, one of the greatest economists from your economics tutor in economics tuition. Adam Smith referred to the market forces as the “invisible hand.” The price is automatically adjusted based on demand and supply and will eventually reach its equilibrium.

Supply of Bitcoin

Despite the ardent interest shown in bitcoin recently, not many people seem to understand that the supply of bitcoin is mathematically limited at twenty-one million bitcoins. Therefore, at this point in time, the supply of this digital currency has reached its maximum and therefore will remain at a fixed amount. This means, the price of the currency is dependent solely on the demand. Please consult your economics tutor in your economics tuition class on how to draw the supply curve of bitcoin in this case.

Demand for Bitcoin

The unprecedented rise in the price of bitcoin has resulted in unprecedented demand for this digital currency. Attracted by the lucrative profit, many investors have entered the market, chasing the price higher and higher. This can be illustrated with a demand and supply curve. Please approach your economics tutor in economics tuition for assistance if necessary.

What has contributed to the phenomenal rise in demand for bitcoin? Is it real demand or speculative activities?

A Miracle or A Mirage

Many investors believe they are embracing the biggest revolution in currency. Their investment pays off handsomely up to this point. Nevertheless, there are investors who have suffered great losses from the extremely volatile fluctuations in its price.

Despite the digital currency being welcomed by some of the biggest names on Wall Street with open arms, others are skeptical about it. This includes the living legend, billionaire, Warren Buffett. When interviewed by CNBC in 2014, Buffett called bitcoin “a mirage” and warned investors to “stay away from it”.

Some economists second Buffett’s view. Alan Greenspan, former Chairman of the Federal Reserve, USA said the digital currency bitcoin does not make any sense to him. However, he also commented that something that was ultimately worthless might create real goods and services in future. It seems the former Federal Reserve Chairman cannot rule out the possibility of bitcoin’s success. Read up on your own or consult your economics tutor during economics tuition the legends of Warren Buffett and Alan Greenspan.

With more and more countries and businesses accepting bitcoin as a digital currency for transaction, could the digital currency ultimately replace the physical currency in future? The world has been evolving constantly. We would not have imagined that gold and silver will be replaced by notes hundreds of years ago. Fast forward to the present, few people carry physical notes in their wallet. Majority of transactions are done with e-nets, credit cards, Paypal, Apple pay and Samsung pay, just to name a few. It is the reality in China that nowadays, people are able to make payment by scanning the barcode even to the street vendors. What we do not understand and accept now may become a norm in future. In time to come, we will know whether bitcoin will succeed.

Linda Geng

Click to Read Next Post

 

economics tuition, back to homepage

Economics Tuition Singapore @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek