December 2017 was an unusual period – we had what could be classed as one of the largest ‘bubbles’ there has ever been of any asset types. Not a day would go by without crypto currencies being quoted in the media, the parabolic upward moves increasing each week met with equal hype by both retail investors and general interest. After reaching a high of $19,000, various industry experts were calling for a move of the crypto currency to at least $100,000 by year end 2018.
Fast forward to Dec 2018 and the picture couldn’t be more different. With the poster boy/girl of crypto currencies down over 75%, currently trading at $4300 with both overall sentiment and technical chart analysis pointing to a continued move lower. In such a short space of time, why has the interest and perceived success of Bitcoin changed?
Bitcoin first came into existence 10 years ago. The original concept was perfectly timed, coming just after the global credit crisis where confidence in the financial and credit markets were at an all-time low. Investors had just experienced the largest quantitative easing and money printing program ever in existence by every major global central bank. Bitcoin came along and appealed to those that where disenfranchised with how central banks had acted and liked the following aspects: digitally secure, finite amount, and peer to peer currencies which were entirely decentralised. If I look at the virtues on paper, in a theory it can be argued this is the utopia of money.
The thing that always perplexed me about Bitcoin the most was its actual users. I found that the two main ones were entirely contradictory; The first type would be speculators. These would usually trade on an intraday/week/month period and had little use for Bitcoin other than to make a capital gains. Many thousands of retails traders were brought in through the gains that traders were making and which I’m sure was at least partially responsible for the move to the high back in December 2017. The second type were those that used Bitcoin as a currency as a means of exchanges between two, however with this there was a huge white elephant, namely opportunity cost: Had you used your Bitcoin to pay for a coffee back in 2011? It’s likely you could have bought a couple of houses had you held out up until October 2017, this was also linked to the assets volatility: For a confirmed means of exchange, you need stability and the price movements in Bitcoin are nothing like this.
Market manipulation has occurred in many assets over the past, but as it stands there currently are some very astute regulators actively seeking out anybody doing this. These are from listed national exchanges however, where there is clear jurisdiction on what is classed as manipulation in relation to specific assets. As there is a grey area surrounding Bitcoin, specifically to where the exchanges are based, it’s not clear who exactly is regulating this market: On that basis there is a plausible motive for active manipulation of prices by active and large traders if they know their trades or strategy won’t be questioned. I am sure this occurs and could have been rife in the run up to the high of last year.
The speed of transfer has also been a huge issue for Bitcoin itself: tabled as extremely quick on a peer to peer basis- it’s actually quite slow on a relative basis. For example, Bitcoin processes 7 transactions per second- Quick you think? Not really when you consider Ethereum does 15, Ripple does 1500 and Visa does a remarkable 24,000 per second. For this to be the usable tool to the financial industry, it has at least got to be as fast, if not faster with more scalability than what’s available at the moment.
I have no doubt that the technology behind crypto currencies will be used in the future in some form, but whether Bitcoin will continue in its current form or as the most popular crypto currency is still very questionable.
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