Bitcoin technology has seen tremendous ups and downs over the past year. If you recall, bitcoin surged to $12,000 in November and then to $17,000 overnight (although the cryptocurrency then took a sharp downturn shortly thereafter). Based on current trends, what will happen during the rest of 2018 with this unique industry?
Bitcoin as a competitive asset
As Jordan Hiscott, our Chief Trader, pointed out, is bitcoin truly a valuable currency if it experiences 15% fluctuations in a day? Transaction costs are also very expensive. This is partly due to the size of bitcoin’s blockchain which limits the number of transactions that can go through the network. The fees, however, discourage those who want to use bitcoin as a payment method. Transactions are also slow, sometimes taking 10 minutes to complete.
In competition with bitcoin, Bitcoin Cash, a cryptocurrency that split from bitcoin earlier in 2017, is encouraging miners to switch as the transaction fees are lower and the network is not clogged with transactions.
— Blockchair (@Blockchair) August 23, 2017
To really compete as a genuine means of exchange, bitcoin will need to lower transaction fees which may not be possible for the original cryptocurrency.
— CMEGroup (@CMEGroup) December 7, 2017
Forks took place throughout 2017 such as Bitcoin Diamond, Bitcoin Gold, and Bitcoin Cash. These currencies deviated from the original blockchain technology with changes made to the software.
Other alternative cryptocurrencies are also entering the market. The popularity of Ethereum has led to a whole new chain of blockchain based startups. These startups have raised over $1.2 billion since 2014, funded by initial coin offerings (ICOs). Ripple, Dash, and Litecoin are also gaining popularity, with Litecoin being the most similar to bitcoin.
It remains to be seen if these viral currencies can coexist and if bitcoin can stay on top as new competitors continue to enter the industry.
In Japan, bitcoin has seen increased growth since the currency officially became a method of payment in April 2017 in 260,000 stores. The acceptance and success of Bitcoin in this country could encourage greater adoption in other countries.
Bitcoin futures hit the market under Cboe Global Markets in 2017 and soared past $18,000 their first day of trading. In addition to Cbeo’s bitcoin futures, the Chicago Mercantile Exchange also now offers bitcoin futures contracts. Nasdaq could be joining very soon as well.
Bitcoin transaction volume increased in 2017. Oversight and regulation for cryptocurrencies should also continue to increase in 2018. Based on this, it will be interesting to see if major companies such as Amazon will introduce bitcoin payments during 2018.
Popping the bubble
Many experts believe that bitcoin is the next technology bubble just waiting to pop. It is difficult however to place a real value on the cryptocurrency as there is not truly a comparable market.
Bitcoin is not backed by any country’s central bank. It runs instead on a decentralised network of computers globally. There of course is the potential for investors to get nervous and sell at any given point. UBS analyst Paul Donovan recommends staying away from the bitcoin bubble, stating that bubbles are irrational and when they are going to pop cannot be predicted – it is better then to avoid completely.
For others such as Jeroen Blokland, an investor at Robeco, bubble claims are not concerning as bitcoin has been speculated as one since its beginning 9 years ago. In any case, significant price fluctuations should continue – due in part to Bitcoin’s limited and highly inelastic supply.
An unpredictable future
While some are optimistic about bitcoin and its place in the global economy, others are skeptical.
Deutsche Bank’s chief international economist, Torsten Slok, warns of the possible crash in the price of bitcoin in 2018. According to Slok, the markets have not correctly priced in the broader impact bitcoin could potentially have and that bitcoin’s wild price swings could become ‘more systemic’ this year.
According to Bitcoin.com, however, true believers in the currency will not be shaken if a crash does occur in 2018 due to experiencing bitcoin bear markets in the past – even if those with herd mentality jump ship.
2017 was a significant year for bitcoin. Although price fluctuations should continue, acceptance and demand for this cryptocurrency should also become more widespread in the current year.
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