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Is it dangerous money? Mechanism of Bitcoin soaring and plunging

Bitcoin is the most famous and digital money among many crypto assets (virtual currency).

There is no money in Bitcoin, and only the data that exists on the computer and the Internet trades monetary value. And we are using a new computer mechanism called blockchain. That’s why Bitcoin believes that many will be the money of the future.

However, it is no exaggeration to say that the history of Bitcoin so far is the history of soaring and plunging. It’s so volatile that some financial and economic experts consider it dangerous. Why is the price of Bitcoin not so stable?

I tried to find out the reason.

History of Bitcoin price movements

The concept of Bitcoin was announced to the public in 2008, and it was proposed in 2010 that it would be worth two pizzas ($ 25 in total) at 10,000 BTC. BTC is a unit of Bitcoin and is read as “Bitcoin”.

Based on the pizza price and the dollar-yen exchange rate at the time of 2010, “10,000 BTC = 2 pizzas = $ 25” and “1 BTC = 3.64 yen”. You can think of this as the initial price of Bitcoin.

10,000 yen to 17.6 billion yen in more than 10 years

In 2021, more than 10 years after the birth of Bitcoin, 1BTC temporarily rose to about 6.4 million yen. From 3.64 yen, it has increased 1.76 million times.

If you had invested 10,000 yen in Bitcoin in 2010 (if you bought 10,000 yen worth of Bitcoin), it would have been worth 17,600,000,000 yen in 2021.

It can be one-fifth in a year

Up to this point, we have introduced a dream story, but from here on, we will introduce a harsh reality.

Bitcoin began trading on the US futures exchange CME in 2017. Public institutions have officially acknowledged that Bitcoin has monetary value and can be an investment target.

Under the influence of this, 1BTC soared to 2.4 million yen, but in 2018, the following year, 1BTC plunged to about 500,000 yen. The value has been reduced to about one-fifth. If you had 10 million yen worth of Bitcoin, its value would be reduced to 2 million yen.

Why is it falling?

Bitcoin fluctuates repeatedly because Bitcoin has no proof of value.

When something that is not backed by value soars, the risk of a crash suddenly increases. This is because the soaring price, which is not supported by value, is supported only by the strength of people’s desire to buy. If people suddenly start thinking they don’t need it, they can easily lose value.

The Japanese yen and Japanese land are widely recognized as assets and do not fluctuate because the value is backed by public institutions such as the government.

Bitcoin is not involved in any government or central bank in any country, and we call this situation “unsupported”.

How great $ 60,000 is

The price of 1 BTC = 60,000 dollars (about 6.6 million yen) in 2021 means a market capitalization of 2 trillion dollars (220 trillion yen) (* 1). Market capitalization is a concept used to measure the monetary value of a company and is calculated using the following formula.

● Market capitalization (yen) = stock price of 1 share (yen / share) x number of issued shares (shares)

You can buy the company by paying the market capitalization of Japanese yen.

For example, if the stock price of a company is ¥ 8,366 and the number of issued shares is approximately 3.3 billion, the market capitalization of this company will be approximately ¥ 27 trillion. This is the market capitalization of Toyota Motor Corporation in April 2021.

Bitcoin is not a stock, but its market capitalization is calculated by “1 BTC price x number of Bitcoins issued”. In other words, Bitcoin with a market capitalization of $ 2 trillion is equivalent to the value of eight Toyota companies (= 220 trillion yen ÷ 27 trillion yen = about 8.15).

Bitcoin’s value on this scale, without evidence of value, is unusual in both good and bad ways.


What is a mask shock?

The soaring Bitcoin in 2021 was called the mask shock or mask market.

In February 2021, it was discovered that American electric vehicle maker Tesla, of which Elon Musk is the CEO, had purchased $ 1.5 billion worth of Bitcoin (* 2).

When this news came out, the price of Bitcoin rose by 16{5f3ac39ba1b9031997b955ac72c92bb5456d725b06fa10f02cdda1ab745591c7}. How do world-renowned business owners view Bitcoin?


“Do not cash” “Sell electric cars with Bitcoin”

After purchasing a large amount of Bitcoin, Mr. Musk announced the following two things on Twitter (* 3).

● Purchased Bitcoins will not be converted into legal tender
● Tesla’s electric vehicles will be available for purchase with Bitcoins

Fiat currencies are government-approved currencies such as the dollar and yen. Declaring not to convert to fiat currency is like saying that you did not buy Bitcoin for speculative purposes.

Furthermore, not exchanging for fiat currency also means recognizing the value of Bitcoin as Bitcoin. General investors try to measure the value of Bitcoin in dollars and yen, but Mr. Musk does not.

Mr. Musk’s idea also leads to making it possible to buy Tesla’s electric car with Bitcoin.


Understanding that it’s a little better than cash

When Tesla builds an electric car, it buys raw materials and materials for dollars. Therefore, no matter how much Tesla saves Bitcoin, you must always pay a portion of that Bitcoin in dollars.

If Bitcoin’s value is halved, Tesla will have trouble raising dollars. If the value of Bitcoin doubles, Tesla will be able to raise a lot of dollars.

Mr. Musk read that the former situation would not be the case, but the latter. It can be said that the essence of the mask shock is that the prominent business owners who are attracting the world’s attention highly valued the value of Bitcoin.

“Bitcoin is about as worthless as fiat currency,” Musk said in a media interview. “Almost” seems to mean that Bitcoin is “a little better” (* 4).


What is the risk of losing everything?

Investors may want to keep in mind Mr. Musk’s idea that Bitcoin is a little better than cash (fiat currency). You can learn the lesson that overconfidence is prohibited in Bitcoin investment.

And it is the British financial authorities who regard Bitcoin as more dangerous than Mr. Musk (* 7).

The British Financial Behavior Authority (FCA) warned in January 2021 that “people investing in crypto assets such as Bitcoin should be prepared to lose everything.” “It involves extremely high risks,” he said.

The British FCA raises a sense of crisis in Bitcoin speculation because investment principles may not work. The principle of investment is high cashability.

For example, if you buy land in peacetime and sell it in peacetime, you won’t lose much money or loss. That is because the land is highly cashable. Equity investment can also be sold at a similar price if you buy the stock of a company with stable management.

However, Bitcoin, whose value can be halved, is not highly cashable.

Bitcoin investors (bitcoin owners) are happy when they soar, but disastrous when they fall. This is true for all investments, but the British FCA seems to think that the ups and downs of Bitcoin are too great.

Summary-What is the true value?

Bitcoin is a good investment target for those who are at risk of a surge and expect high returns for investment purposes. And for those who predict that future money will be data, Bitcoin will look like a financial service that anticipates the future.

However, some economic experts point out that Bitcoin is the same as gold and does not generate any income (* 5).

In this way, the value of Bitcoin is not only a monetary value, but also a conceptual value. Difficult relationships with Bitcoin may continue for some time.