Bitcoin’s demise has been greatly exaggerated say experts,
▶ The cryptocurrency’s value has halved in weeks, but those locked into the industry are predicting steep gains
The digital currency bitcoin may have taken a serious hit after its value rocketed towards US$20,000 (Dh73,450) late last year, yet cryptocurrency experts are predicting a bright future.
Billionaire investor Warren Buffett knows a thing or two about making bucketloads of cash and has doused the enthusiasm of investors predicting big returns by claiming the world’s leading cryptocurrency is doomed to fail.
The chairman and chief executive of the conglomerate Berkshire Hathaway said “cryptocurrencies will almost certainly come to a bad ending”.
That has been hotly disputed at the World Government Summit in Dubai from those locked into the industry who are predicting the market cap this year could double December’s high point of about $600 billion.
Bitcoin, currently trading at about $8,500, has halved in value in just weeks.
“Warren Buffett is good at renting furniture, but this is a very different system,” said Nick Spanos, founder of Bitcoin Centre in New York.
“Bitcoin is the goose that laid the golden cryptocurrency and because of its success last year it has helped the emergence of hundreds of smaller currencies. We should believe in bitcoin more than the currencies offered by central banks. History shows that something that is scarce, like bitcoin, has value.
“Cryptocurrency is the people’s declaration of monetary independence.”
Bitcoin is a virtual currency mined by supercomputers that crack a complex string of digital code to earn coins that are then traded on exchanges.
A recent “gold rush” caused the price of bitcoin to spike from about $ 9,000 in early November to almost $20,000 by mid-December.
That was largely due to panic buying and media reports fuelling cryptocurrency interest, according to Jesse Powell, the founder and chief executive of Kraken Bitcoin Exchange.
“There was a lot of excitement and media attention that drew in a lot of new investors, particularly in Japan, which resulted in the positive move in the market,” he said.
“Consumers need to look af- ter themselves, they can’t rely on any particular machine or regulation to protect them from market volatility.”
The recent introduction of tether, a cryptocurrency tied to the US dollar, has been cited as a possible contributing factor to recent soaring bitcoin inflation, and possible market manipulation.
Along with fraud and money laundering, it is a genuine concern for financial regulators.
If the currency is not really linked to actual dollars – and it was propping up bitcoin prices – then that would signal that bitcoin and other currencies are not worth what speculators and investors assume.
Tether’s creators claim it is backed by one dollar for each token issued.
However, an anonymous report claims bitcoin’s real value without that support is closer to $4,500, rather than the market value of about $8,500.
“Tether is facilitating new investors into the market and if it’s true that it is marked by dollars, then there are now real dollars in the crypto market,” Mr Powell said.
“I think we are going to see an acceleration in cryptocurrency growth this year and that will continue exponentially towards a trillion-dollar market.”
Regulators in the US are focused on a lack of transparency in who is buying cryptocurrencies and their related coins, while China intends to block domestic access to online trading platforms and mobile apps.
“You cannot regulate bitcoin but countries can regulate themselves out of the market by bringing in their own restrictions,” Mr Spanos said. “Bitcoin is not a bubble; it is the pin that will pop the regulatory financial system’s bubble.”
Kian Lon Wong, the president of Nem.io – a blockchain technology to help secure online as- sets – said although the recent buying frenzy may have abated, for cryptos, the only way is up.
“Last year there was a growing interest in Asia helping fuel the big increase in prices,” he said.
“We are still in the early stage of the industry and the adopter curve. What we do know is that blockchain, the technology behind many of these currencies, is here to stay.
“We are on a steep learning curve, but the only way is up for bitcoin.”
It is thought about a third of the 17 million bitcoins in circulation have been lost, while another large proportion is owned by “whales” looking to control the market – bitcoin whales are the 1,000 people who own 40 per cent of the market, according to Bloomberg – and the rest are owned by retail consumers.
Lawrence Wintermeyer, co-founder and principal of financial advisers Ellipsis, said new investors took the market to unprecedented levels, with cryptocurrencies valued at twice that of gold.
“Retail investors need to be aware of the risks and … many new investors are not,” he said.
“I don’t think too many people will be interested if the fund managers lose out, but it will be a concern if the retail investors lose their investments if the value of Bitcoin crashes.”