Bitcoin: Boom or Bust?

  • 20-12-2018

From bartering goods and services to the invention of paper money to Bitcoin, we’ve come a long way in terms of how we quantify the value of products and services. However, we have reached a crossroads concerning the sustainability of the latest evolution in currency — while many believe that cryptocurrencies are too unstable to depend on, others think that its invention is the next best thing since the internet!

Bitcoin’s got a lot to prove — since its creation nine years ago, its existence has inspired the creation of hundreds of alternative cryptocurrencies, otherwise known as altcoins. The small nuances between one altcoin and another allows people to use them in lots of different ways, from buying and selling goods and services to revolutionizing the way industries perform.

With competition from all the other cryptocurrencies in the market, as well as its notorious reputation, a commonly asked question is: Will Bitcoin go boom or go bust? Let’s take a few main things in consideration and try to figure it out for ourselves:

  • Bitcoin will stay & continue to develop.

There are persistent, lingering concerns on the security and feasibility of digital currencies — but experts believe it won’t stop the cryptocurrency from staying. Earlier, the main proponents of Bitcoin were from the IT industry — but recently, major investors, entrepreneurs, and the financial industry have begun to see bitcoin as a legitimate asset class, much like stocks, bonds, or commodities.

Just this year, prominent names like Andreessen Horowitz and Sequoia Capital have bet on hedge funds that invest millions of dollars into digital currency funds. While this is happening, much investment has gone into financial infrastructures that support Bitcoin and other digital currencies as well — Calypso Technology Inc and R3 are developing an application for trade matching confirmations with a group of global financial institutions, and the Commodity Future Trading Commission allowed firms to sell digital currency options as well as other derivatives. Bitcoin has attracted the attention of several notable personalities that are sure to keep it running for a while.

  • Bitcoin is steadily growing more valuable over time

Only 21 million Bitcoins will ever be produced — and most of them have already been produced. The number of coins created by mining drops by half every four years, and around 80% of all Bitcoins have already been mined. No new ones will appear after the year 2040, and this could continue to drive up demand — especially if central banks decide to start buying them as foreign currency reserves.

However, Bitcoin is still vulnerable to terrible crashes. In 2013, the currency rose to over $1,100 only to drop to $700 months later, and then crash to $200 in early 2015. It’s possible that a devaluation like this could happen again. Investors must be well-informed about these ups and downs and prepare themselves for wild swings in both directions.

  • Bitcoin regulations are being formulated and tested around the world

In April of this year, Japan passed a law recognizing Bitcoin as legal tender, with several retailers backing this law. A few months later, Japan’s Financial Services Agency (FSA) officially recognized eleven companies as registered cryptocurrency exchange operators. There are even reports that Japanese banks are setting up their own digital currency, called the J-Coin.

Japan’s open stance to Bitcoin and digital currencies is in stark contrast to that of China, where regulators have banned initial coin offerings (ICOs) and several Bitcoin exchanges announced they would end trading by the end of September.

These two countries are the main forces behind the rise of Bitcoin and other cryptocurrency prices this year, as China considers cracking down even further on the cryptocurrency and just building its own digital currency, and Japan continues efforts to regulate Bitcoin as true legal payment. 

Other countries that have tried placing regulations on Bitcoin is Australia, which enacted reforms that brought digital currency exchanges under the scope of Austrac (Australia’s financial policing agency); and those within the European Union, who have yet to approve proposed modifications on the current anti-money laundering laws published in Italy. Of late, the Abu Dhabi Global Market, or ADGM, issued guidance in cryptocurrencies, and this was generally positive. In a statement, the Abu Dhabi Global Market described ICOs as a “novel and potentially more cost-effective way of raising funds for companies and projects”. The Authority said that while ICOs represented a new way of raising funds, the transparency of ICOs varied greatly from issuance to issuance, and a ‘one size fits all’ approach to ICOs would not be appropriate.

It also advised caution to those seeking outsized investment returns due to their (virtual currencies’) price volatility.

  • Bitcoin may pressure traditional systems to improve

Bitcoin doesn’t need to take over the world to do good — it’s already helping traditional financial systems change the way they handle finance.

When Bitcoin was created in the midst of the 2008 financial crisis, its decentralized monetary policy presented the promise of a store of value independent of any government or central bank. The appeal it generated has lasted long past the crisis and has stuck with the cryptocurrency until today, as Bitcoin is now known as a viable alternative for people living in unstable countries, failing currencies, and/or fraudulent banking systems.

So, from this perspective, Bitcoin sometimes functions as the last hope of societies that no longer have any faith in their governments, banks, or currencies. But its value doesn’t need to wait until then to be realized — many people believe that the mere existence of Bitcoin incentivizes businesses and financial institutions to improve the efficiency and affordability of their services. This is held by the underlying belief that these institutions no longer have their customer’s best interests in mind, thereby making necessary goods and services difficult to reach for others. These difficulties can manifest in susbtantial Know-Your-Customer rules, copious layers of red tape, and slow transactions.

The concept of a currency as intangible as Bitcoin after centuries of relying on coin and paper can be a bit difficult to comprehend at first, but once the basics are laid down and it feels more familiar, it’s an interesting topic to explore. It can be seen as a continuously evolving innovation in itself, and as a proponent of innovation in others.

However, with only a rudimentary understanding of the cryptocurrency, it is also difficult to make reliable judgment calls. Even pundits have difficulty making accurate predictions. It remains to be seen if Bitcoin can move away from being an intriguing concept, to a full-fledged mode of trading and exhange…Time will tell!

Has this article piqued your interest in the digital currency? Did you know that usually people just buy fractions of a bitcoin, and not an entire bitcoin itself? Each Bitcoin is divided into one hundred million units, individually called ‘satoshi’, and all these units mean you can easily buy fractions of a Bitcoin without losing all your money. Take care to not invest more than what you are willing to use, and to conduct more research before diving into the world of cryptocurrencies.

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