Digital currency – to bitcoin a phrase
| 05-02-2018 | treasuryXL |
These are volatile times in the world of Bitcoin and all other cryptocurrencies. Over the last 2 months there have been large swings in the price – price opened up around USD 10,000 at the start of December 2017 and then roared ahead to over USD 19,000; this was followed by continual declines with the price dropping below USD 9,000 at the end of last week. This morning the price has gone under USD 8,000. Bitcoin has been renowned for its volatility, but are there fundamental factors at work that are affecting the price?
Theft
Yet another hack in the cryptocurrency world– this time of NEM at Coindesk – led to the theft of around USD 500 million. Security seems to be a factor and is having an effect on confidence and sustainability.
Lack of regulation
As a currency and industry that is still very young, there is a lack of proper regulation. When compared to legal tender currencies there is a distinct lack of consumer protection and regulatory framework. Losing all your savings is a high risk that is prevalent in an industry that is so lacking in clear and concise regulations. The Commodity Futures Trading Commission, a regulatory agency in the United States, recently subpoenaed Bitfinex – a cryptocurrency exchange – for possible price manipulation. Their currency – Tether – is supposed to be backed by traditional money, though it appears that Tether has been created without the backing of physical money.
Intervention
The Indian Finance Ministry has spoken about banning cryptocurrency – China is looking at blocking access to exchanges. In South Korea illegal foreign exchange trading using cryptocurrency has been discovered. Possible government intervention is detrimental to the development of digital currency.
Futures market
Whilst it is still too early to report in great detail, opinion is being voiced that the introduction of futures contracts are having an adverse impact on the pricing of cryptocurrency.
Banning
Major US banks have started banning their customers from buying cryptocurrency with their credit cards. The banks are worried about the price volatility and people purchasing investment products via credit.
Lack of commercial acceptance
Until cryptocurrency is accepted by major retailers, it will not be seen as a genuine alternative to fiat currency. Yet again, the price volatility appears to be holding back major stores in embracing the digital coins.
Obsolescence
As a pioneer in the cryptocurrency world, Bitcoin is starting to shows its age. Its file size – 1 megabyte containing about 2500 transactions – is being superseded. Bitcoin cash is 8 times larger and far quicker. It is taking a lot of time for transactions to be verified and the costs to send Bitcoin has increased dramatically – more than USD 100.
Bitcoin is still up around 700 per cent from the beginning of 2017, but the enthusiasm and positive belief seem to be evaporating as the market becomes more mature.
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