It’s hard to know what to consider a milestone in the story of Bitcoin. As the cryptocurrency continues to confound critics and enrich early adopters, it can be tough to keep up with the latest in this fast-moving story – and moments that felt significant at the time have been very quickly overtaken by events.
Recently, the price soared to a seemingly symbolic $10,000 (about £7,500). Given that the price was about $1,000 dollars at the start of the year you can see why 2017 has been the year of Bitcoin. Yet, while an 850-percent jump is clearly going to grab headlines, it hasn’t been a straightforward rise. Indeed, not much about Bitcoin can be classed as straightforward.
Split shows the resilience of Bitcoin
If you want a good example of the volatility of Bitcoin this year, you don’t have to go back far.
On October 24, Bitcoin split to create a new iteration known as Bitcoin Gold. Investors will have been well aware that it was coming, the reasons behind it, and that such an action would cause movement on both sides of the fork, as such a split is known.
They were not to be surprised. The original Bitcoin dropped, while the new Bitcoin Gold version almost immediately plummeted by two-thirds of its value. Just imagine if that happened in a single day to Microsoft or the FTSE; it would lead to chaos.
But such is the life of bitcoin, a digital currency that has seen early investors reap the rewards of their foresight. These forks are not rare, and neither are the fluctuations. Those who caught on early were big winners. One buyer who spent $27 on 5,000 bitcoins in 2009 forgot about his investment for four years and returned to find his outlay was now worth nearly $900,000.
While this investor clearly had other things on his mind, many check the state of play of bitcoin daily or hourly. And part of the reason that many remained stoic during the turmoil is that the cryptocurrency had already hit a record high just three days before. From August to October, the value of one bitcoin fluctuated wildly, plummeting to just $2,900 in mid-September but ascending to $6,180 by October 21. By the start of November, the price hit the $7,000 barrier for the first time. As we’ve seen already, that milestone was significant for a period of barely a few weeks.
Bitcoin’s lack of history makes predictions tough
Extrapolating the price of something that was only created nine or so years ago, and hence still in its embryonic stages, is difficult. There are few precedents. There’s no ‘great bitcoin crash’ of 1929 to look back on, no weight of history that gold, currency or tech carry, no way of really seeing what happens in the future. The ideology behind a currency that is not regulated by any central bank, and instead mined by developers with incredibly complex software and hardware, is still unknown to much of the world. Others know about it but don’t trust or understand it.
At some point investors in Bitcoin – and for that matter counterparts Ethereum, Litecoin, Ripple, and others – are waiting for usage and acceptance of this form of currency to become more widespread and accepted. Earlier in 2017, JP Morgan boss Jamie Dimon stated that digital currencies were a novelty, and worth nothing; the claim was soon shot down in flames but will remain in the back of people’s minds, and he is by no means the only expert to forecast similar outcomes.
The present position, however, even forced IG to suspend some of the tradings of its Bitcoin derivatives after a surge in demand and fears over cybersecurity. The London-listed company, the largest online trading platform, allowsinvestors to trade on Bitcoin price movements without the need to own the cryptocurrency.
Peter Hetherington, IG Group chief executive, told the Financial Times: “We have strict internal hedging limits on certain exotic products – principally cryptocurrencies – to determine how much of the underlying asset we are exposed to and avoid risks we’re not comfortable with.”
Traders and companies alike are handling Bitcoin with caution.
What will 2018 hold for Bitcoin?
There are multiple variables, across the world, that will dictate whether or not the price rises further. Some will avoid these anonymous and hidden transactions, trusting them even less than the banks that have such a dubious reputation. Total ‘production’ of bitcoin is limited to 21 million – what happens when this point is reached? And will China, which ceased supporting bitcoin earlier this year amid fears of the existence of ‘underground economies’ arising, step back into the fray?
Still, there are plenty of people willing to put their head above the parapet and predict continuing growth for Bitcoin.
Hedge fund expert Michael Novogratz, for example, told CNBC’s Fast Money: “Bitcoin could be at $40,000 at the end of 2018. It easily could. Ethereum, which I think just touched $500 or is getting close, could be triple where it is as well. There’s a big wave of money coming, not just here but all around the world.”
Some feel that we’re now moving beyond the ‘early adopter’ phase into a time in which Bitcoin and cryptocurrency is a mainstream product. Central bankers – perhaps expectedly given their role in the ‘old system’ – are more prone to feel that Bitcoin’s story has been a bubble and are eyeing potential controls.
European Central Bank policymaker Ewald Nowotny told Reuters: “The problem with bitcoin is that it could easily blow up and central banks could then be accused of not doing anything. So we’re trying to understand whether bank activity in relation to cryptocurrency trading needs to be better regulated.”
The key advice relating to dealing in cryptocurrency and bitcoin investment is that you should only take the plunge if you’re prepared for a rollercoaster journey and one which might last for some time. Do your research and decide whether you’re expecting higher highs while preparing for lows. Decide whether you actually want to own Bitcoin, or instead utilize leveraged bitcoin trading. And then sit back and strap yourself in for the ride.
