NO END TO BITCOIN FRENZY

EVEN AS THE WORLD DEBATES THE STATUS OF BITCOIN, UNABATED BUYING CONTINUES, EXPOSING INVESTORS TO RISKS.

Despite warnings from central banks and prominent investors from across the world, Bitcoin, which has a market capitalisation of over $300 billion (the total value of the 16.6 million Bitcoins in circulation) is breaking new price barriers on a daily basis. Even as the status of Bitcoin – whether it’s a commodity or a currency – is still being debated, what’s causing this meteoric rise? One of the biggest reasons is the inherent nature of Bitcoins. There can only be 21 million Bitcoins in the world. Even the process of creating new Bitcoins is tedious and complex. The coins are “mined” through high-end computer machines (and software programmes) and then stored in a digital wallet.

People are betting on Bitcoins for various reasons – some compare it with gold since it is limited in quantity and can be produced through mining; some others are betting on blockchain, the technology behind cryptocurrencies. That the currency is not under the purview of any government also makes it attractive for some. With the Chicago Mercantile Exchange starting Bitcoin futures, the cryptocurrency may soon gain acceptance in the mainstream financial world.

Japan is the only country that has legalised Bitcoin as a form of currency. The trading of Bitcoins and other cryptocurrencies is largely restricted to three countries – Japan, South Korea and the US. Japan and South Korea together account for roughly 75 per cent of all Bitcoin trading. The currency has risen 1,550 per cent in 2017 alone, drawing a large number of individuals and companies to invest in hope of further appreciation. The Reserve Bank of India recently issued a warning on Bitcoins saying the bubble could burst in a spectacular fashion.