It’s a virtual currency that’s ‘mined’ online, shared between peers and with no middle-man taking a cut of the profits.
Small wonder, then, that bitcoin rose 7% in just one day – and 75% in just a month – to hit a high of $5,000 (or £3,936). In 2013, bitcoins were worth just £100.
The latest rise comes against a backdrop of political interference. Just days before, bitcoin’s worth plummeted to $4,200 after Russian authorities stated their intention to block ‘dubious’ websites designed for the exchange of bitcoin and other cryptocurrencies. A similar fall occurred last month, where the worth of bitcoins dropped to $3,000 once China banned bitcoin exchange websites.
And they’re not the only ones proclaiming bitcoin to be bad. Back in September, Jamie Dimon, chief of JP Morgan, declared that cryptocurrencies like bitcoin were a ‘fraud.’ He added that ‘it’s worse than tulip bulbs. It won’t end well.’
Critics also include Kenneth Rogoff, former IMF chief economist and professor of economics and public policy at Harvard University. While he believes the technology behind cryptocurrencies is sound, the price of bitcoin could soon collapse. He said:
‘It is folly to think that bitcoin will ever be allowed to supplant central bank-issued money, he told the guardian this week. It is one thing for governments to allow small anonymous transactions with virtual currencies; indeed, this would be desirable. But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity.’
But despite sceptical establishment figures rounding on bitcoin, it’s a clear triumph for what’s hailed as the most disruptive innovation in the financial industry.
Discussing the $5,000 price record, Jordan Hiscott, Ayondo Markets’ chief trader, said:
‘Confounding many financial experts, including Jamie Dimon, CEO of JPMorgan Chase, Bitcoin has reached a new all-time high of $5,233, with robust speculative demand seen on the move through $5,000. The cryptocurrency success story continues, albeit for now, but just as an idea for basis, the asset is up 425% since the start of the year. The returns are truly remarkable, especially given the recent ban on Bitcoin trading in China, where demand had previously accounted for at least 10% of all global volumes.’
There are several reasons why bitcoin is continuing to surge. For one thing, it’s rumoured that Amazon are considering including virtual currencies like bitcoins as accepted payment methods. That alone would be a serious statement from one of the world’s largest retailers and, arguably, increase the number of those using bitcoins given Amazon is a globally recognised and trusted platform.
Similarly, financial luminaries Goldman Sachs have been toying with the idea of introducing a trading desk specifically for bitcoins. This decision, unthinkable even a year ago, is likely brought on by news that the company saw profits slashed by 50% last year as traditional trading and investments fell.
However, perhaps the biggest indication of bitcoin’s growing stature – outside of phenomenal price rises – comes from Reuters. The news agency reported that, added together, cryptocurrencies are now about as big as established financial companies like Royal Bank of Scotland and Goldman Sachs. Cambridge University estimates that there are between 3 and 6 million cryptocurrencies users, with the majority of them using bitcoin.
In other words, bitcoin is big business (and it means business too).
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