Economics Overview

From an economic standpoint Bitcoins are problematic. The value of Bitcoins are not directly tied to anything, and because of that, Bitcoins are extremely volatile. In the last 3 years alone, Bitcoins have had 2 major crashes, yet both of these crashes left the final price higher than it was at the beginning of the rise(Chart 4 & Chart 5).

If Bitcoins are to maintain their value people must have faith that they are in fact valuable, but other than current supporters, new adopters do not appear to be increasing very quickly. Most likely, large amount of new adopters join in sudden bursts. The amount of new adopters is likely to decrease as the price of Bitcoins remains high due to the higher initial investment required. From looking at the trend in total trading volume, it doesn’t appear that Bitcoins have a high rate of increase in users. As current users of Bitcoins are advised to keep multiple Bitcoin accounts, the total number of accounts cannot be used to gauge the number of people currently using Bitcoins. More on this in chart 7.

As an investment Bitcoins are ill advised. Due to their instability the potential for loss is great. Of course, their instability also grants the potential for great gains. All that having been said, it is still unadvisable to invest in Bitcoins at the present time due to their continuing fall in value (chart 5). If one wishes to invest in Bitcoins waiting to purchase them or mining them is most likely best.

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