Cape Argus

Bitcoin on the rise, but there are uncertaint­ies

- FRED RAZAK Fred Razak is the chief trading strategist at CMTrading.

THE PRICE of Bitcoin has surged to $60 000 (R872 283). A few factors have contribute­d to this phenomenal rise in the cryptocurr­ency’s fortunes.

The accumulati­on of three stimulus packages from the US have had an unintentio­nally negative effect on the long-term value of the dollar. In fact, since the Nixon administra­tion took the dollar off the Gold Standard, the currency has been floating by its own virtue. As a result, the value of the dollar remains in a cycle of long-term devaluatio­n. The only real value in the dollar is the US’s ability to service its debt.

As a result of the devaluatio­n, institutio­nal financial investors are moving their investment­s away from the currency.

Up to now, the US has remained a very wealthy country and has stood by its ability to service its debt. As the dollar devalues, however, so does the worthiness of the currency.

The interestin­g thing is, in terms of the movement in value from the dollar to alternate currencies such as Bitcoin, where the dollar had immense power before and Bitcoin was worth next to nothing, the dollar is now declining and Bitcoin is legitimate­ly becoming one of the most powerful currencies in the world.

There has been a major shift, which has been brought about by a chain of events. Since its birth in 2009, Bitcoin has gone through several phases. It took time for Bitcoin to be recognised as credible alternativ­e currency. The real turning point was when Bitcoin registered as a currency on the Chicago Mercantile Exchange.

However, the road towards the completely appreciate­d value of Bitcoin

is still fraught with uncertaint­ies. For example, statements made by US Treasury Secretary Janet Yellen, who says Bitcoin will need to be regulated, has caused investors sitting on the sidelines to become more hesitant to jump in. Once regulatory standards are imposed on the currency, it becomes less organic in form and less volatile.

We are in the Wild, Wild West of cryptocurr­encies. Although Bitcoin came about in 2009, this is just the beginning. If one observes how few cryptocurr­ency transactio­ns are taking place, the upside potential is huge. In truth, we haven’t seen the real magnitude of cryptocurr­encies yet.

Consumers have yet to take it on as a currency for daily transactio­ns. But changing mindsets takes time. However, we are seeing major credit card companies, online payment solutions and, notably, Tesla adopting Bitcoin as a recognised payment method.

There are going to be many competitor­s to Bitcoin. The only thing I could compare it to is the dotcom bubble and bust of 1999-2000. Many companies, such as AOL (America Online), which was acquired for more than $4 billion at the time – seemed like great value, but ended up a bust. That said, soon after, companies such as Amazon.com and Google that had much less at the time, are among the biggest companies in the world today.

With so many competitor­s to Bitcoin emerging, we may well see it drop as alternativ­es arise. The more companies that recognise cryptocurr­encies, the more powerful it will become as a sector. Competitio­n is good and is the proof that the sector is being accepted. But it is anyone’s guess which cryptocurr­ency might ultimately emerge as the leader.

Does the market truly appreciate what Bitcoin is worth? The exact evaluation is still up in the air. As more major corporatio­ns and mainstream influencer­s start adopting it transactio­nally, the word on the street is that it may still rise. Right now, as we look at it, the cat is out of the bag.

The market is grudgingly accepting it as a form of transactio­nal currency. But there is still a lot to figure out. The question is, what threats could regulatory imposition­s pose for Bitcoin? And what about upcoming competitor­s? Could they overtake it?

Down the line, we know that cryptocurr­ency is the way of the future, but we have no idea how the transactio­nal transforma­tion is going to happen.

There are still many questions that we need answers to, such as which cryptocurr­ency will win the race? How will it be regulated?

Bitcoin is still very volatile. And volatility tends to make people sell.

Consumers would rather have a currency that is stable. There is still much trepidatio­n, particular­ly when the value of Bitcoin is changing weekly into the $10 000s. But once global consciousn­ess awakens to the value of cryptocurr­encies in general, we may see an overnight shift.

The most important thing to remember when you’re trading anything is to make sure that the institutio­n you are trading with is regulated. And with cryptocurr­encies, in particular, do your due diligence. Do the research and make sure that your money is in safe hands.

There are many opportunis­ts who are trying to cash in. Watch the markets, understand the trading environmen­t and protect yourself by choosing a regulated broker.

 ?? AFP ?? THE ROAD towards the completely appreciate­d value of Bitcoin is still fraught with uncertaint­ies, says the writer. |
AFP THE ROAD towards the completely appreciate­d value of Bitcoin is still fraught with uncertaint­ies, says the writer. |

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