The Bitcoin year of living dangerously
Regulation is catching up to Bitcoin, the cryptocurrency that captured the imagination of investors.
Bitcoin came into its own in 2017. The digital currency – which was created nearly nine years ago – became a highflying investment vehicle, prompting much discussion about its existence, how to capitalise on its rise and the mania surrounding cryptocurrency.
On the first day of 2017, Bitcoin was valued at US$973 (NZ$1400), according to the cryptocurrency trackercoinmarketcap.com.
Then in March, the cryptocurrency for the first time surpassed the value of one ounce of gold at US$1235.
Just seven months later, Bitcoin reached an all-time high of US$5,856, in October, bringing its market capitalisation above that of major financial players Goldman Sachs and Morgan Stanley.
And as of Friday morning, the virtual currency is worth more than 15 times the amount it started off at the beginning of the year, at US$14,670.
Experts say the rise in Bitcoin’s value has prompted swelling public interest, converting excitement into greater investment and, in turn, higher prices.
‘‘Everyone is talking about it,’’ said Angela Walch, a research fellow at the UCL Centre for Blockchain Technologies, London.
‘‘In Starbucks, everyone is talking about it. At Christmas everyone is talking about it. They are not talking about it in any other away than the value has increased so much.’’
Christian Catalini, a professor and founder of MIT’s Cryptoeconomics Lab, said widespread news coverage has led to a rush to buy Bitcoin.
‘‘The fear of missing out has been the leitmotif of the year. People hear about the price of
"Bitcoin is a massive experiment and there are many ways that the experiment can go wrong." Christian Catalini of MIT
Bitcoin increasing and increasing and when that happens the price goes up. You’ve seen this dance of enthusiasm and hype building.’’
But just last week the digital currency saw a decline of 30 per cent in a single day before recovering some ground, highlighting its volatile nature.
Bitcoin is largely unregulated, and it is not issued by a government or controlled through a centralised financial institution. Its value can swing drastically in days or even hours.
‘‘It’s important to remember these are highly speculative assets,’’ said Catalini. ‘‘They are highly volatile. These are experiments. Bitcoin is a massive experiment and there are many ways that the experiment can go wrong. People should consider this as a form of gambling.’’
But that hasn’t stopped investors spending up big, using credit cards or mortgages.
Hoping to seize on the bitcoin frenzy, some businesses have even changed their names to include the word ‘‘blockchain’’, the technology that drives the virtual currency.
Last week, the beverage companyLong Island Iced Tea said that it was renaming itself Long Blockchain. Soon after, its stock price tripled.
‘‘Blockchain and other names associated with the cryptocurrency world have been used for marketing for a while,’’ said Walch. ‘‘Put blockchain and PowerPoint together and VCs will throw money at you. What we have seen is this has become laughable.’’
In 2017, cryptocurrency investors also suffered through major thefts and distressing mishaps.
In early December, hackers stole more than US$70 million worth of Bitcoin from NiceHash, a marketplace for generating virtual currencies through complex mathematical calculations. But digital heists weren’t the only way cryptocurrency investors were stripped of their money.
Some have lost small fortunes by their very own hands. Harrowing tales have cropped up recently detailing how people have lost or forgot their login credentials to access their Bitcoin, prompting some to hire hypnotists, enlist benevolent hackers and even endeavour to rummage through mountains of trash.
Governments are now starting to introduced regulation.
Bitcoin futures can now be traded in the US. In Australia, South Korea and Japan, bitcoin and other cryptocurrency markets are some government supervision, as officials there instituted antimoney-laundering regulations.
If last year was one of rediscovery and acceleration for Bitcoin, as Catalini put it, 2018 may be defined by further development and transformation.
He sees new forms of centralisation taking hold, such as the rise in popularity and influence of cryptocurrency exchanges, since consumers tend to prefer products that are convenient and accessible.
He also envisions other experiments in applying blockchain technology beyond cryptocurrency.
‘‘The space is maturing and that also means more pressure on bitcoin core developers and open source developers to really get this technology and scale it.’’
❚ Washington Post