At the time of writing, in December 2017, bitcoin currently hovers around the $11,800 mark. It was only during December 2016, when bitcoin surpassed $900 for the first time since the Mt. Gox controversy several years prior. The million dollar question for bitcoin right now, quite literally, is whether it has the capacity to survive this climb in valuation.
For anyone studying the cryptocurrency market, it is almost immediately clear that the factors affecting the price of bitcoin are not too different from the ones that influence the prices of most commodities. At the end of the day, it is easy to conclude that bitcoin’s exponential rise in price this year can be largely attributed to the sudden uptick in its worldwide adoption and interest.
Further, with a total supply cap of 21 million bitcoin, and a significant percentage of that figure being either lost forever or not mined yet, many traders are of the adamant belief that its price will continue to rise. By now, it should be absolutely apparent that the driving force behind bitcoin’s current gains is not arbitrary, but instead, a result of market demand and an artificial limit on availability. Similar to the valuation attached to Leonardo da Vinci’s Salvator Mundi, which was sold for $450 million recently.
Even with the kind of growth that Bitcoin and Ethereum have experienced in 2017, the total market capitalization of all cryptocurrencies combined is only around $350 billion. Cryptocurrencies still have a long way to go before they surpass, or even match, other traditional financial assets. After all, even gold’s relatively small global market cap of $7.8 trillion seems like an insurmountable challenge for the cryptocurrency market right now. And that is not even considering the market cap of equities and other forms of investment.
Even though a mere lustrous metal might seem overvalued at $7.8 trillion, it is interesting to note that in contrast to other popular assets such as securitized debt, equities and residential real estate, even gold’s market cap is a mere drop in the ocean. And thus, a similar comparison can be made in the case of cryptocurrencies. The market cap of digital currencies are a mere fraction of gold, which itself is a mere fraction of all asset classes. Bitcoin, or all currencies combined, do not need to become the definitive method of investment in the world, nor do they have to be the majority, but right now, it cannot defeat any major asset class.
Bitcoin’s future is fraught with uncertainties, with nobody knowing what its value could be tomorrow or a few months from now. But that is only if we limit the discussion to one or two cryptocurrencies. As many optimists of the technology have been saying for the past couple of years, the world is on the cusp of a cryptocurrency-backed financial revolution.
Maybe with the strengthening of several cryptocurrencies at once, cryptocurrencies may establish themselves as a formidable asset class. Even a year ago, when bitcoin’s price was 10 percent of what it is today, it was hard to ignore the cryptocurrency market as a whole. The value of the entire digital currency market is only headed in one direction and that is up.