Examining Bitcoin's ups and downs

  Bitcoin has progressed from being only a nerd's version of gold years ago.

Bitcoin has undergone a lot of ups and downs in its brief history. Online trading school Investoo.com has created an infographic detailing the major Bitcoin crashes since it was introduced. Bitcoin is both a cryptocurrency and an electronic payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. It was introduced on 31 October 2008 to a cryptography mailing list, and released as open source software in 2009.

Investoo.com notes Bitcoin's journey has been long, from the first Bitcoin transaction, which resulted in the kick-off of the Bitcoin blockchain on 3 January 2009, to the recent moves by Chinese authorities to restrict Bitcoin transactions.

Earlier this year, the People's Bank of China launched spot checks on the country's three largest Bitcoin exchanges to look into a range of possible rule violations, amid increasing government efforts to stem capital outflows and relieve pressure on the yuan. Stanko Saponja, an analyst at Investoo.com, notes that when Bitcoin was introduced in 2009, one Bitcoin was equivalent to $0.00076.

 In December last year, the total value of all Bitcoins in circulation hit a record high of above $14 billion. However, in January this year, the dramatic rally in digital currency came to a spectacular end with a plunge of up to 20% as China's yuan rose sharply. "In 2013, the price briefly exceeded $1 200, and this was followed by a crash in the price of Bitcoin, sending it down to below $250 soon after," Saponja notes. "This has led some skeptics to claim this price rise, too, is a bubble."

He points out the size and computing power of the Bitcoin mining network, which confirms and validates transactions, has risen exponentially since then, and the number of users, merchants, and exchange volume has grown similarly. According to Saponja, the rapid rise in 2013 is now attributed to fraudulent trading and price manipulation that exploited illiquid and immature markets, and which eventually led to the famous collapse of the primary, and corrupt, Bitcoin Exchange. "Bitcoin has gone from being just a nerd's version of gold years ago, to now being another thing people do to try to hold onto their wealth," he says.

Saponja says in 2015, Bitcoin rose modestly, from $313 to $431, a 37% rise, kicking off a year of steady growth throughout 2016. The price surged 122% in 2016, making it one of the top trades of the year (from around $400 to just under $1 000), he adds. Investoo.com notes 2016 saw relative price stability in Bitcoin, as its price rose steadily, and with lower volatility than had been experienced in the past, and it also gained wider acceptance and legitimacy as a means of payment.

Some analysts predict 2017 will be another banner year, while others are more skeptical, calling this recent rise a bubble that is waiting to burst (current price is 1 BTC = $1 023.38 – 27 March 2017). "My opinion is that demand for Bitcoin as a currency is also likely to continue to grow in 2017, again as China has promised to restrict capital outflows and to devalue its currency in order to protect exporters."

Describing the major drivers of Bitcoin, Saponja says increased demand came from China as capital controls tightened and regulators continued to devalue the yuan systematically. China and India have both been big buyers as part of a broader global landscape that has pushed Bitcoin's acceptance, further along, he notes.

"Chinese investors have bought Bitcoins as the yuan has lost its value, while the surge in India has been driven thanks to the government's decision to retire some currency denominations. In most countries, companies that trade Bitcoins onto the local currency would be regulated, as more and more larger corporations start offering Bitcoin as a payment alternative."

Nonetheless, he says Bitcoin has sometimes attracted the wrong types of people – those looking to prey on others who fall under the spell of a never-ending upward trend for Bitcoin's price. "Whether it's illegal online marketplaces, pump-and-dump schemes or shady crypto exchanges, they all create a black cloud over the industry. And, every time there is another Bitcoin robbery or scam, it draws attention from the mainstream.

"The bad actor problem creates a consumer protection issue for Bitcoin. When people learn about Bitcoin and are lured to products and services that do not follow best practices, as opaque as they may be in this industry, that's a problem. According to some analysts, the five biggest threats facing Bitcoin are the centralisation of Bitcoin, fraud, regulation, poor mobile platform support, and confidence."

Chuck Reynolds
Contributor

Alan Zibluk – Markethive Founding Member

Japan is recognizing bitcoin as a legal

Japan is set to begin recognizing bitcoin as a legal method of payment starting tomorrow. The country's legislature passed a law, following months of debate, that brought bitcoin exchanges under anti-money laundering/know-your-customer rules, while also categorizing bitcoin as a kind of prepaid payment instrument. It's a debate that began in the wake of the collapse of Mt Gox, the now-defunct bitcoin exchange that shuttered after months of growing complications and, in the end, revelations of insolvency and alleged fraud.

According to Japan’s Financial Services Agency, that law goes into effect on 1st April, putting in place capital requirements for exchanges as well as cybersecurity and operational stipulations. In addition, those exchanges will also be required to conduct employee training programs and submit to annual audits. Yet there may be more work to come in this area.

For example, Nomura Research Institute's Yasutake Okano indicated in a May 2016 report that other Japanese laws may need to change to account for the tech, including the Banking Act and Financial Instruments and Exchange Act. Reports indicate that other groups in Japan are moving to plug some of those gaps as well. According to a report from Nikkei, the Accounting Standards Board of Japan decided earlier this week to begin developing standards for digital currencies like bitcoin. Its work mirrors other efforts being undertaken elsewhere, including Australia, which began pushing for such standards late last year.

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Alan Zibluk – Markethive Founding Member

Thoughts On What Bitcoin's
Rise In Value Mean

The cryptocurrency bitcoin — money backed by mathematics rather than governments or precious metals — first came into existence around 2009. The digital currency, which is "mined" by computers, has since gained a solid number of adherents, and nearly as many questions.

 

The CryptoCurrency BitCoin

Bitcoin brags about their digital wallets, easy transfers, identity protection and minimal fees. Critics warn of the system's complexity to explain, as well as its volatility. Some question the use the money is put to, saying that anonymity can help criminals shift money safer.

But in early January, Bitcoin's value surpassed a record-high set in November 2013, and as of early March, the price continues to rise. Is this change a temporary one, coming from market influences, or does it signal broader acceptance for the currency? Members in the Forbes Technology Council have this to say about what 2017 will mean for bitcoin adoption:

Remember: Early Leaders Are Usually Not the Ultimate Winners 

I think the real question is less about how widespread bitcoin's adoption is going to be, and more about how long before other currencies adopt blockchain as their basis. The early leader in almost any technology is usually not the ultimate winner. There is already a lot of development and early exploration both into integrating blockchain into currency, but there is not clear standard — yet.

Governments Don't Want It 

You don't need to go far to recognize why bitcoin is back at record highs. Just look at the situation with China's economy right now. The SEC delayed their decision on the Winklevoss's bitcoin exchange-traded fund, which means we'll likely not see what happens for several more months under a new presidency. Governments around the world will never want a currency that is supply limited.

Adoption Set To Increase 

I think as long as it keeps going up and continues to stabilize in its pricing, more people and businesses will become interested and adopt it in the coming year. With more work being done on country regulations and standards, as well as further research on applications for blockchain, the comfort level for use will increase.

Cryptocurrency Will Grow 

The bitcoin era is halfway through its course, while cryptocurrency overall is still growing. The golden years are already gone, and only big mining pools will be able to thoroughly profit from it from now due to large investors bringing tons of technological and human resources to the table. However, cryptocurrency popularity will only increase based on Bitcoin’s success and others will emerge.

Volatility Driven By Multiple Factors 

Unlike fiat currencies, bitcoin volatility is influenced by regulation, politics and proposed technology changes. 2017 started with a record $18 billion market capitalization. With 90% of miners and 70% of trades in China, the recent regulatory moves created vast volatility. The rest of the year will see even more volatility with the political, economic and technical (such as block size debates) uncertainties.

Chuck Reynolds
Contributor

Alan Zibluk – Markethive Founding Member