After being in the doldrums for so long, why is Bitcoin rising now? Bitcoin is dramatically recovering from the Mt. Gox fiasco, and the frenzy surrounding the arrest of its CEO a few months ago. Mt. Gox had been the biggest Bitcoin exchange. For the uninitiated, Bitcoin is a decentralized (read: unregulated) digital currency, supported by nothing more than its ability to support and sustain its value – unlike the Dollar or the Euro.
Thus, in some ways it is like gold. But gold, of course, is a popular physical commodity with a historical track record as well, which can be held and hoarded physically. Bitcoin cannot, and as a store of wealth is in its infancy. But it has a quality, or at least the technology behind it, called the blockchain, does, which may give it greater utility. And unlike gold, its value is going in a different direction. Gold has seen its value decline some 30 percent this year, while recent reports show the Bitcoin surging to the $400 mark, and it may be poised to advance even further according to analysts – maybe by more than 30% within a year.
This move has raised questions in both the tech and financial communities. After being in the doldrums for so long, why is Bitcoin rising now?
After the erosion of faith surrounding Mt. Gox CEO Mark Kapele’s arrest, and the tales of millions of dollars worth Bitcoins disappearing from personal accounts, the potential value of the technology is being explored by unlikely sources – established, mainstream financial institutions. Accounts of such interest were reported here during the summer. As JP Morgan Chase’s head of corporate strategy said, “Bitcoin is an idea whose time has arrived,” and it has tremendous implications which could transform financial back-offices,
“Now, It is a real opportunity.…test it and realize that this can play a big role in our thinking.”
It appears that the interest emanating from Wall Street is only the first step in the digital currency’s march to respectability. Some Wall Street watchers estimate that the top 100 financial companies will spend $1 billion on block-chain technology in the next two years, and that over the next decade it may be a viable world currency reserve.
Ironically, one of the catalysts for Bitcoin holding value for so long may be a factor in derailing its sudden surge in popularity. There has also been a big uptick in demand for Bitcoin in China, where the new interest is being explained by a number of factors, including the drop in the stock market there, as well as the emergence of a new dubious (and possibly criminal) scheme tied to Bitcoin.
The price of Bitcoin has been rising faster on Chinese exchanges than elsewhere in the world, but the speculative nature of the digital currency, and the attendant absence of regulation, have undermined the Chinese stock market, and threatened its continued viability. This fact may be countered by many Chinese abandoning the renminbi in favour of Bitcoin as China struggles economically.
But it seems that interest from the American financial industry in Bitcoin’s underlying technology, and its potential for revolutionizing the way business is transacted, may be its salvation. Wall Street firms such as Goldman Sachs and the New York Stock Exchange see block-chain technology as a way to conduct financial transactions safely and cheaply. The EU seems to be on board as well, poised to elevate Bitcoin to currency rather than commodity status. Hence, more reason for the $600 price target.
All is not rosy in the Bitcoin picture, however, which may prompt law enforcement and financial regulators to rein it in, and thus dampen its appreciation prospects and increase its volatility. For example, because of its anonymity, it is often used in nefarious terrorist business transactions. Indeed, it is the currency of choice in many ransom scenarios, ranging from terrorists to cyber-criminals who hack into websites and hold them hostage. Then, too there are all kinds of criminal activities on the Interne t- such as illegal drug transactions in Bitcoin, which tarnish its reputation. But it is believed that the advantages of its technology, most notably the block-chain, will fuel future interest in it, and drive the value of Bitcoin even higher.