Bitcoin started in 2008 but it was by early 2013 that it started getting into news. It is a cryptocurrency and known more famously for its peer to peer format. The concept is to limit the number of bitcoins to 21 million and bitcoin mining will become more labour intensive in terms of hardware and software requirements as time progresses. It is certainly an interesting concept but has no physical value attached to it which also makes it a dangerous strategy to implement.
There are somethings which act both as advantage and disadvantage. Transactions are anonymous which is advantage as it protects privacy of user but also a disadvantage . BitCoin has been declared as legal currency in many countries. Other Cryptocurrencies like Etherium are trying to end Bitcoin's dominance. And 21 million limit on Bitcoin would mean once we are 2021, people would move to other currencies as Bitcoin won't be available, this would also leave a sudden drop in supply . As when there would be less demand, people would first try to hold on and will then sell it at cheaper rates. This would eventually lead to a price crash then.
There is an extra risk involved with Bitcoin as to store Bitcoin's you need to have online wallets. You might remember that in 2011 a Bitcoin wallet company declared that it had lost around 8,50,000 Bitcoins and filed for bankruptcy. You do know the value of that. Each Bitcoin now costs $4300 and you can estimate the present loss that could have been there.
Recent Price Action
BitCoin used to trade between $10- $15 in 2013 but in 2016 it rose to $1100 and in 2017 it is at $4500.There have been a number of developments which have led to movement of Bitcoin. There are a lot of countries which approved Bitcoin transactions, people started using it as a hedge to prevent themselves from currency depreciation and asset management company started offering it as another service along with equity, debt and commodity. Also, the supply cycle of Bitcoin which is becoming narrow and the number of coins infused reducing everyday pushed it higher.
However, there are things like Chinese putting a ban, increase in awareness and big traders predicting its downfall as it has no fundamental value according to them, has led to a 10% correction from all time highs
Future of BitCoin
So what should we expect next of Bitcoin? We have seen a number of reasons above, for its advantages and disadvantages. There are Bitcoin diehard fans who believe it will getting advantage of first mover, as BitCoin always has a number of buyer's present who are ready to buy BitCoin, providing stability at lower level. But, what happened in Tulip Bubble, when people were mad about Tulips is something similar to what is happening. We all know things adjust to their fundamental value in long run. Since, BitCoin doesn't have one it is very difficult to predict the future. However, till the time we have demand in the market it is going to survive.
About the Author
Harneet is an Engineer and MBA graduate from IMT Ghaziabad. He is the founder of The Buzz Stand, which is a digital marketing company in India and offers courses on basics of Finance as well. He is also a consultant with SAMT, which is an asset management company in Switzerland.