Bitcoin Skyrockets

The value of the Bitcoin cryptocurrency has risen sharply, reaching a value of £22,000 for the first time ever.

Bitcoin

Bitcoin is a digital web-based currency that operates without the need for central banks and uses highly secure encryption to regulate the currency units and to verify transfers of funds. Bitcoin, which was first produced in 2009, uses the ‘Blockchain’ technology. Blockchain is an open and programmable technology that can be used to record transactions for virtually anything of value that can be converted to code and is often referred to as a kind of ‘incorruptible ledger’.

Bad Times

Back in 2017, after a meteoric rise in value, the Bitcoin value ‘bubble’ famously burst and took a nosedive in 2018, hitting a 4-month low in November 2018.  At the time, this crash was attributed to factors such as the overconsumption of bitcoin in the first place, extra regulation in the US., investors’ fears over the currency’s volatility, security fears and Investigations by the Securities and Exchange Commission of initial coin offerings and crypto exchanges, as well as too long a wait for the January 2019 launch of bitcoin futures by Bakkt, Intercontinental Exchange’s crypto platform.

Good Times Back or Another Bubble?

Bitcoin’s value rose again in March and, on the Chicago Mercantile Exchange, by November 2020 the number of bitcoin futures and options contracts open had quadrupled since the same time in 2019 (Bloomberg).  This boost in value carried on through December as Bitcoin reached £22,000 for the first time.

Why The Rise?

The latest rapid rise in Bitcoin’s value may be attributed to several factors including:

– More speculation and/or Investors seeking safety after an uncertain year at the hands of COVID-19 and its effects on the global economy.

– Some investors e.g., family offices, looking for an alternative investment to gold as a way of protecting against inflation.

– Recent falls in the value of the US dollar.

– Encouraging noises about Bitcoin from the world’s biggest payments groups.  For example, PayPal is allowing US customers to buy, sell and hold bitcoin (and other tokens) in their online wallets, Square buying $50m in bitcoin in October because of its perceived future growth potential, and major banks e.g., European Central Bank, considering getting into cryptocurrencies.

– A greater acceptance of cryptocurrencies by younger investors.

What Does This Mean For Your Business?

The benefits and the need for digital currencies have been understood for some time but their adoption by mainstream financial players was delayed by many issues including a lack of regulation and security fears.  Despite the continued volatility of Bitcoin, the uncertainty of the current economic times, the attractiveness of Bitcoin as an investment appears to be a possible replacement for gold in some portfolios, and apparent commitments from big payment players have made Bitcoin look more attractive now than it has for years.  Some critics still see its purchase as too speculative and suggest that this is another bubble, but economies have undergone massive unforeseen changes over the last year where digital transformation and faith in technology have been accelerated. There is also a general feeling among some big investors that the benefits Bitcoin and other cryptocurrencies are now beginning to outweigh their drawbacks and that there is a general willingness to see what positive aspects they can offer if given the chance to be used more widely.

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