Bitcoin has smashed the legendary $ 15 000 mark just after noon (SAST) today, the 7th of December. With every YouTube video and website advertising a wide variety of Bitcoin and other cryptocurrency-related services, the average, normal individual is left to wonder what to make of this exciting and strange phenomenon in our modern tech-society.
Nordea Bank AB, the largest financial group in Northern Europe, had their chief executive calling it a “joke”. Many more finance professionals and long-time players have raised their eyebrows in severe skepticism, and given the nature of the entity, investors have plenty of reasons to be concerned.
Crypto fever has caught on in South Africa as well. As Bitcoin is a currency, it has many different prices connected to various currencies. The Rand-Bitcoin (BTCZAR) price of a single Bitcoin broke through the R 200 000 barrier on the morning of December 7, although volatility remains high with violent fluctuations in every market. On a granular level, the BTCZAR singular price has pushed as far as R 230 000 in individual markets such as Luno, a South African-based Bitcoin exchange.
South African citizens are embracing the plethora of opportunities that Bitcoin presents. Citizens can even pay their traffic fines using Bitcoin through certain companies. A specific company, Fines4U, is not adopting Bitcoin in the more traditional sense which has been seen in other countries such as Japan however, where direct payments are allowed. Rather, this is a creative attempt to accumulate Bitcoin without direct investment. This approach represents a new wave of individual adoption where individuals are thinking out of the box in order to participate in the cryptocurrency mania, with some South African I.T. employers offering their staff bonuses and even salaries in Bitcoin.
Nona Creative, a digital consultancy and product development firm in Cape Town, with the slogan “Web Apps for Humans”, recently purchased a significant chunk of shares in what it claims to possibly be the first Bitcoin equity transaction in the country ever. CEO, Mike Scott, said: “We firmly believe in Bitcoin and wanted to show just how effortless it is to conduct normal business transactions using cryptocurrency.” Clearly, Bitcoin is becoming more and more integrated into our mainstream financial society and shows no signs of becoming irrelevant.
Cryptocurrencies have been carefully crafted to avoid fitting into any conventionally-defined security categories. It cannot be a commodity; it has no physical and tangible form. It isn’t a derivative either; again, it simply sits in cyberspace. Regulators are struggling to even begin regulating cryptocurrencies as they have no geographical source. Korea, for example, has banned the exchange of Bitcoin but is finding it incredibly difficult to enforce the ban and it hasn’t realised a significant decrease in the crazy growth in the relevant local market at all. At the time of writing this, Korea’s local market was valuing a single Bitcoin at $ 19 000.
Bitcoin and other cryptos are here to stay it would seem. They are also near impossible to regulate right now. How can an individual and society as a whole benefit from this new technology?
Firstly, what makes Bitcoin so great? There is clearly a general consensus that cryptocurrencies are simply pockets of hot air. Bitcoin’s price has no grounding in anything besides sentiment. It has no influence on interest rates, inflation trends or any other macro-economic indicators. The true innovation, as propagated by numerous financial and tech experts, is not Bitcoin itself. It lies in the mechanism upon which Bitcoin is built, the blockchain. Not going into the technical details, blockchain technology allows any cryptocurrency to function as a gigantic, collective and completely transparent public ledger. Nobody can lie about their Bitcoin transactions. Every time a crypto is sold or bought, every single holder of all the other Bitcoins in the world has their “ledgers” updated. The future financial applications are fantastic, indisputably so.
Secondly, there is a clear upward trend in the price of Bitcoin, despite the wild volatility levels – rapid up and down price movements are intrinsic to an entity that has no other driving force besides investor sentiment – and more and more people are investing in cryptocurrencies as Bitcoin’s market capitalisation has surpassed Warren Buffett’s total value and the entire New Zealand GDP. There is opportunity in investing here, but around every corner scams and shady businesses have sprung up around the craze. If a website has long, complicated user agreements and makes it easy for a new user to swipe their credit card, it is best to be avoided. Etoro and IQ Option spring to mind as gambling service sites masquerading as legitimate financial institutions, whilst Bitcoin pyramid schemes such as BitClub Network openly admit to being pyramid schemes. Even simply buying and holding Bitcoin is risky, although the clear upwards trend has the world in awe.
Bitcoin has grown close to 1 800% in 2017 alone. Since its inception, it has grown from $ 0.01 in 2009 to $ 15 000 today (2017/12/07), totalling 29 000 000 %. That is 29 million percent. Most of the growth has occurred in 2017. It is the greatest modern investment bubble of our time, because it has no intrinsic value. It is bits of code in cyberspace, at its core. Bubbles can burst, and the brutal price movements make speculation very risky.
The verdict? Avoid the scams and the pyramid schemes. Buying and holding Bitcoin can be good this year end. It has repeatedly defied expectations. But bubbles are always profitable until they are not, and this is a bubble through and through. Caution must be exercised when investing in Bitcoin, and no sane-minded investor should invest a significant proportion of their capital in an entity such as this. Moreover, it would be inadvisable to park cash in the cryptocloud for too long. As for the innovation behind the cryptocurrency mania, it is here to stay and we should welcome it. A worldwide, completely transparent, constantly updated public ledger seems to be a very refreshing concept.
Please note that this article is NOT intended to be used as financial advice and the author cannot be held responsible for any financial or any other losses as a result of Bitcoin-related interactions. Stay safe, don’t gamble.