Bitcoin Recovers its Luster Following Wild Ride

Anyone who appreciates the thrills and chills of riding a great rollercoaster understands that it’s the heart-stopping heights and jaw-clenching lows, followed by yet another shot into the stratosphere, that make you get on that ride – over and over again. Bitcoin’s recent wild ride is keeping investors on their toes as the cryptocurrency shakes off a 25 percent drop from last week’s high of $7,721 to a startling low of $5,617 on Sunday. As of this writing, Bitcoin remains choppy, with trades changing hands for $6,571.30. Bitcoin’s market capitalization, or the total value of all the virtual coins in circulation, rose over $10 billion in the same time period, according to industry website Coinmarketcap.com (http://dtn.fm/W0eGr). Bitcoin now boasts a market value of more than $109 billion.

News of the cryptocurrency’s rise and fall has been attributed in part to bitcoin cash, an offshoot clone coin created to improve bitcoin’s slower transaction fees. Backers of the spinout coin that debuted in August positioned it as a solution to help bitcoin’s scaling problem (http://dtn.fm/xpS1P). However, the main cause of the volatility was developers calling off plans to implement an upgrade called “Segwit2x” to boost bitcoin transaction speeds after support for the move waned. With more people investing in bitcoin, transactions have become slower and noticeably more expensive, making it difficult for bitcoin to mature and rival some of the world’s largest payment systems such as Visa, MasterCard and PayPal. The average time to confirm a bitcoin deal surged from under 20 minutes to six hours at one point this year, according to an article in Bloomberg Technology (http://dtn.fm/ZGNx8).

Billionaire Peter Thiel, co-founder of PayPal, told FOX Business in an interview last month that, while he’s skeptical of most cryptocurrencies, bitcoin is “very underestimated.”

“It’s like a reserve form of money. It’s like gold and it’s just a store of value. You don’t actually need to use it to make payment,” he told Maria Bartiromo during an interview at a conference in Riyadh, Saudi Arabia (http://dtn.fm/A9i2x). Thiel’s position on bitcoin is diametrically different than that expressed by Jamie Dimon, chairman and CEO of JPMorgan Chase, who called bitcoin a “fraud” in September and warned that it would eventually implode.

However, Thiel proposed a different take: “The argument it’s based on is the security of the math which tells you it can never be diluted by government … it can’t be hacked and it’s a form of money that’s … secure in an absolute way.”

Then there is a report from Equedia Investment Research (http://dtn.fm/6PdHm) that poses the question, “Is Bitcoin the New Stimulus?” The report by Ivan Lo states that as big banks are getting bigger and making and risking more money than ever, it’s still the centralized banks around the world that claim the largest share of the global financial pie. So why, this report postulates, would world governments allow their control over money to slip into the hands of, basically, no one or cryptocurrencies? Governments can, and have, shut down digital currency exchanges – think China – so Lo wonders aloud if the Federal Reserve, the International Monetary Fund, or another major organization might be the true creators of Bitcoin?

“When you consider that civilizations have always had leadership, whether it’s government or other entities such as banks or secret rulers, the idea of these central banks and their intervention makes sense,” Lo writes.

The flipside of that theory tells investors that an entire industry has emerged with multiple businesses offering bitcoin trading services, the creation of bitcoin through “mining,” and even sales of digital mining equipment. The next step in making the digital currency a legitimate investment asset is through the launch of bitcoin futures, Terry Duffy, CEO of CME Group, said Monday (http://dtn.fm/sc4VA) on CNBC’s “Power Lunch.”

CME announced on October 31 that it would launch bitcoin futures by the end of the year, pending regulatory review. The futures contract will be cash-settled according to the daily settlement price of the CME CF Bitcoin Reference Rate (BRR), which tracks a few major bitcoin exchanges. CME’s system of “velocity logic functionality” might halt its bitcoin market for an hour if the digital currency is too volatile, which is “going to add a lot more structure to the marketplace,” Duffy said.

Digital currency enthusiasts will no doubt be ready to take the plunge, as there are few who believe the globally traded asset will settle into a boring routine.

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