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Is Bitcoin an investment that truly represents a threat? (EN/FR)

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Is Bitcoin an investment that truly represents a threat? ( EN/FR )

Since its creation in 2009, when Bitcoin was worth only $0.001, it has kept increasing in value until it reached $40,000 on January 7, 2020. But what is Bitcoin, a new type of investment that defies the laws of economics or the biggest speculative bubble of the 21st century?...

What is Bitcoin and how is it created?

Appeared in 2009, Bitcoin is often referred to as virtual "currency" or "crypto-money"; the latter is entirely dematerialised and can only be exchanged online.

Bitcoin can be traded on online platforms and is an investment, its value depends on the law of supply and demand. However, Bitcoins can also be created through a mining process. This process consists of having the transactions carried out on the network monitored by Internet users, known as "miners", using specialised computer equipment. Their computers are put into competition and the one who wins the validation of the transaction receives new Bitcoins as a reward.

The number of Bitcoins in circulation is limited to 21 million units. Today, more than 80% of this figure is reached, which slows down the rate of production of Bitcoins over time.

But doesn't the exceptional performance of Bitcoin reflect the advent of a new, more profitable type of investment?

First of all, let's quickly review Bitcoin's performance and what it has already yielded to the investors who chose to invest in it:

Bitcoin is based on a computer protocol for encrypted and decentralised transactions, also known as blockchain. It is a networked operation without intermediaries, unlike currencies controlled by central banks or governments. The blockchain is truly at the heart of Bitcoin's operation because it is the key to ensuring the security of Bitcoin transactions.

In addition, the scarcity of Bitcoin, which is limited to 21 million units, also contributes to the rise in the price of Bitcoin. This limited mass of Bitcoin allows, among other things, the control of inflation, a concept that the public authorities are interested in.

However, Bitcoin is undoubtedly more akin to an investment product than a currency because of its sudden fluctuations, which have never been recorded for national currencies. Bitcoin is therefore rare, convertible at any time into US-dollar, euro, pound sterling and other currencies, so it fills all the boxes to qualify as an investment product or "crypto-asset".

However, the driving force behind the growth in the value of this product is in fact speculation, which since 2008 has contributed to the constant anticipation of an increase in its price. And what is the driving force behind this speculation? Notoriety! Indeed, since its creation, it seems that a "fashion effect" has allowed Bitcoin to take off, as Thomas Lee, founder of Fundstrat Global Advisors, explained. According to him, 94% of the price variations can be explained by one and same equation: the price of Bitcoin is proportional to the square of the number of registered on Bitcoin's trading platforms. The graph below shows the fashion effect of Bitcoin, which is reflected by an increase of Bitcoin in Google search trends, which would cascade its price upwards :

Why do public authorities and economists keep warning about the risks of this crypto-money?

First of all, it is necessary to understand the specificity of Bitcoin, which lies in its hybrid status as an investment product that also plays the role of a non-state currency. In this way, it differs from all the currencies created until now since it is not subject to any form of regulation. As a result, institutions such as the European Central Bank cannot play the role of a regulatory fund. Yet this form of regulation is what prevents the euro from collapsing and, more generally, keeps European economies afloat in the midst of the health crisis. If Bitcoin were to take ever more space on the markets and become widespread as a classic investment, given the dizzying variations in its price, it could be the cause of major monetary, financial, economic and social crises.

On the other hand, the security and confidentiality of transactions, permitted in particular by the blockchain system, may have a negative effect. Christine Lagarde, President of the ECB, warned in particular that Bitcoin had already made it easier to launder money.

Finally, according to a study carried out by Flipside Crypto, 2% of Bitcoin holders hold 95% of the total amount in circulation. These "whales" would therefore hold a sufficient quantity of Bitcoin to be able to manipulate its price and logically seek to steer it upwards. This could undoubtedly explain the volatile price of Bitcoin.

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Le Bitcoin, un investissement qui représente réellement une menace ?

Depuis sa création en 2009, date à laquelle le Bitcoin ne valait que 0,001$, le Bitcoin n’a cessé de prendre de la valeur jusqu’à atteindre le 7 Janvier 2020 les 40 000$. Mais qu’est-ce donc que le Bitcoin, un type d’investissement nouveau qui défie les lois de l’économie ou bien la plus grosse bulle spéculative du XXIème siècle ?...

Qu’est-ce que le Bitcoin et comment est-il créé ?