Bitcoin and digital currency more broadly is one of the most divisive concepts of our time. The idea of a currency which is not controlled by a state or a corporation and which maintains such a high level of privacy for its users is a much-needed relief for some and a threat to the whole economic and political system to others. One thing is certain: its value has soared over the past 12 months from just over $400 per bitcoin a year ago to over $1,350 in recent weeks.

Here are three predictions for the future of bitcoin…

Bitcoin will be closer to £3,000 by the end of the year

As bitcoin is primarily used for trading or transferring value, the value of bitcoin is controlled by the total value of goods in transit tied to bitcoin as the payment medium. As more and more trade is taken up using bitcoin as the transaction medium, the value of bitcoin will rise to equal that trade.

  

With non-digital currencies, this valuation fluctuation can be controlled by the government or state monetary authority controlling supply (through variation in the amount of currency created) and controlling demand (through setting interest rates). However, governments cannot control the supply of bitcoin so as the currency becomes more widely used, a continuous increase in the value of bitcoin is predicted. This theory is born out of research undertaken by the World Economic Forum.

Money laundering poses a big threat

While many will associate the use of bitcoin with the purchasing of illicit materials from sites such as the now defunct Silk Road, there are now potentially much more lucrative opportunities for criminals. The dark or shadow economy is estimated to take up somewhere in the region of 17 percent of the world's total GDP. Due to the level of anonymity bitcoin provides, there is a huge opportunity for its use to avoid anti-money laundering legislation. Any increase in use here would result in a reflected uplift in the value.

Governments will try to control bitcoin (and fail)

As bitcoin becomes more pervasive, we predict governments will try to control it, try to understand more detail about how it is being used and try to monitor its use in the dark economy. However, because of the structure of bitcoin, and the encryption and anonymity which is baked into blockchain there is very little opportunity to control this. The only clear way for nation states to control the distribution of the currency would be for them to buy up the supply and stockpile bitcoin, as many have done with gold.

Regardless of what bitcoin is being used for, the key takeaway is that it is being used more and more widely and that this expanding use is resulting in a corresponding uplift in value which shows no sign of slowing anytime soon.

Chuck Reynolds
Contributor

Alan Zibluk – Markethive Founding Member

Bitcoin prices have surged following Japan’s decision to allow the cryptocurrency as a legal method of payment, marking a major step in its adoption. The price of a bitcoin rose above $1,140 (£909) according to Coindesk’s price index. Just over a week ago one bitcoin was trading below $1,000. Japan's new law will mean bitcoin exchanges have to comply with anti-money-laundering and know-your-customer regulations. The cryptocurrency was drawn to Japanese regulators' attention by the spectacular collapse of the Tokyo-based Mt Gox exchange in February 2014.

The push to institutionalise bitcoin had been dealt a blow by the failure of a new exchange-traded fund (ETF) tracking the currency to gain regulatory approval from the US Securities and Exchange Commission (SEC).

  

Japan recognises Bitcoin as a valid

The SEC had been concerned by the lack of regulatory oversight in the bitcoin spot exchange market, which would allow market manipulation and fraud. Yet the move by Japan recognises bitcoin as a valid part of the financial infrastructure, setting an example which other governments will watch closely.

Pavel Matveev, co-founder at bitcoin platform Wirex, said: “Japan has fired a starting pistol in terms of cryptocurrency adoption. “Japan’s recognition of consumers’ appetite for cryptocurrency payments is an important development and provides other governments with food for thought if they wish to compete in an increasingly globalised and digital world."

Bitcoin’s adoption has slowly moved from the more arcane, even anarchic, corners of the libertarian internet towards being increasingly accepted in the mainstream. However, the cryptocurrency still faces barriers to institutional take-up, with massive volatility in prices and scepticism from regulators stemming from bitcoin’s central role behind online black market payments.

There are also concerns within the developer community around bitcoin’s architecture. It is based on distributed ledger technology which means every user has an identical record of payments, stored in the blockchain.

However, the rapid expansion in bitcoin activity has led to debates about increasing the size of the blocks. Some in the bitcoin community fear a “hard fork” in which two competing versions of the cryptocurrency exist, fragmenting a market with little central control.

Chuck Reynolds
Contributor

Alan Zibluk – Markethive Founding Member