Bitcoin, the digital gold, was presented as a white paper in 2009 as a peer to peer transfer method. In 2010 the concept of crypto-currency gained popularity and as a result multiple crypto currencies were born. Today there are over 1000 crypto currencies available in the market.
Through this article, I will address the following; popularity, deep dive into the 2017 price rally, Will it continue to rally in the future and the disadvantages
Bitcoin is now at the top of all crypto currencies and has been highly debated over since the past few months.
The reason behind its popularity is not only that it’s the first ever crypto currency but also due to the following:
- Transaction cost: Low fees compared to the traditional payment method
- Convenience: Convenient method to transfer huge sum of money internationally
- Anonymity: Bitcoin payments are anonymous. The anonymity of transactions can be both beneficial and a risk. Its beneficial as it helps maintain security of the transaction. The risk being that, many illegal transactions can be done without the fear of being caught.
- Ease: Ease to buy bitcoin
- There are some things money can’t buy(directly), but bitcoin can, and that will be the other crypto currencies!
Bitcoin has transformed into a strong crypto-currency thanks to the other crypto currencies as any other crypto currency can be traded using bitcoin. Recently IOTA another crypto currency was in the news as it emerged as the 4th highest crypto currency beating Ripple and the easiest way to invest in IOTA is by trading bitcoins (I could not find a way to directly buy IOTA using USD). Bitcoin, being the oldest crypto currency, it is now a benchmark status.
Why Bitcoin rallied in 2017:
Bitcoin, the internet money, like most of the technology giants today grew leaps and bounds this year. The major reason for its tremendous growth were
- Mainstream popularity of Blockchain technology
- Recognition by retail giants and ecommerce platforms as a mode of payment
- Awareness of its advantages and growth among the public
- Legalization of bitcoin by APAC nations
- Ingestion of money from APAC nations and failing economies
- Announcement of launch of bitcoin futures by CBOE & CME
- Mining of bitcoin
Asia’s mom and pops who started investing in bitcoin early this year drove the price higher and bitcoin continues to lure further investors in the fear of missing out, FOMO. In April Japan recognized bitcoin as legal tender creating interest in the investors. China, Japan and South Korea have the busiest crypto currency exchanges. Ease of buying bitcoin attracts more investors everyday and with the returns some of the early investors have made, the attraction towards bitcoin has only increased. Everyday, the bitcoin exchanges add more users who are interested in paying any price to acquire one bitcoin.
Can bitcoin price grow any further?
Bitcoin, the iMoney had it been coined by late Steve jobs, was valued at $1000 at the start of this year and touched nearly $19000 by early December. There is no specific value of a bitcoin but its price in future will depend on
- Its continuous growth in widespread acceptance by retail & ecommerce
- Mining of bitcoins; out of the 21M bitcoins, currently, 16.5M are in circulation . With only 4.5M bitcoins available to mine, this may drive the price higher
- FOMO was one of the driving factors for the bitcoin price rise this year and might continue to be in the future as well
- Economic insecurities in under performing nations might continue to force the ingestion of individual’s savings into bitcoin
- Regulations being enforced by some of the fiat currencies
- Competition from other upcoming and existing crypto currencies
Does Bitcoin have any disadvantages?
- Each transaction is anonymous implying that government cannot track it. This raises the demand for regularization.
- Bitcoin could be a threat to the banking system which is highly regulated. If the bank’s transaction business is affected, they might increase the interest rate to compensate for the loss which can lead to economic impact
- One of the easiest ways to convert black money into white money
- Like any other digital footprint this is also prone to hacking. Last week Nicehash a bitcoin trading platform reported that their platform was hacked and 4700 bitcoins were stolen
Bitcoin, the king of crypto currencies, was the most talked about currency of 2017 and will likely be the most talked about in the coming years. It will be great to see if it retains the throne and expands its kingdom or if it will be conquered and dethroned!
The advantages and the ease of buying bitcoin has attracted and continues to attract more investors. With the launch of the futures, investors who missed the 2017 rally will get an opportunity to trade. Though digital currency has disadvantages, it is here to stay!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.