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  • Bitcoin On Roller Coaster Ride!! 0 comments
    Dec 21, 2013 11:25 PM | about stocks: COIN

    Bitcoin on Roller Coaster Ride

    What a ride!

    Bitcoin's value fell sharply after the People's Bank of China decided to ban third-party payments of Bitcoin or any other cryptocurrency. But what has sounded the death knell for Bitcoin is when BTC China, the largest Bitcoin exchange, said that it would no longer accept deposits in Bitcoins.

    In recent times, Bitcoin has always found a way to remain in the news; it is seen to go through the usual ups and downs just as the protagonist changes.

    On one hand, it is the VC capital funding, sometimes the Winklevoss brothers who predicted that the price of one Bitcoin will reach $40,000, or financial institutions who are speculating on the regulatory implications if the currency goes mainstream, and most of all China, which is where the latest action is happening.

    The price for one Bitcoin on 19 November 2013 was $541 and it crossed $1,200 by end of November. It was hailed as a revolutionary financial and monetary tool and drew conclusion to be an alternative to gold (gosh!). After those heady days, Bitcoin's value is back to $522 on 18 December 2013. In its month-long rollercoaster ride, Bitcoin has fallen by 19 points or -3.85%, compared to the reliable S&P's gain of 0.62%. But that's not all; for the same period, S&P's annual volatility comes close to 9% while that of Bitcoin is more than 202%. You are free to choose your poison; however, a circular ride of more than 180% is not for the weak- hearted!

    Taking an example of how the volatility impacts the things you buy from it, to buy a Tesla car worth $100,000 in Bitcoins trading at 100 per dollar means that one needs 1,000 Bitcoins to buy the car. In just half an hour, while we convert dollars to Bitcoins, the price decreases to 80 per dollar. This means that one now needs 1,250 Bitcoins to buy the car. In the meantime, after a person purchases the car, the Bitcoin price increases to 110 per dollar. Hence, if the car would have been purchased an hour earlier, it would have required only 909 Bitcoins. As a result, the person loses 341 precious Bitcoins in an hour's time due to unfortunate timing. Time lottery sounds exciting?

    Who benefitted the most during this time?

    Was it China, which tried to show the world that it has the Midas touch? And after the move seemingly backfired when investors raised concerns on the legitimacy of its own currency?

    Or was it the speculators or the hoarders who fuelled the publicity of the digital currency to lure the common investor and make a killing out of it?

    And who was at the receiving end? We all know better.

    What's in store for the future?

    As we've earlier mentioned, Bitcoin seems more like an experiment rather than an alternative currency. Moreover, there are critical lessons to be learnt by banks, countries, speculators, consumers, regulators, governments, and believers in virtual currencies. Tomorrow, how hard those lessons would be, remains to be still seen. The ride is in full motion with some nasty bumps coming up ahead. Over to you Bitcoin!

    Stocks: COIN
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