New tulip mania? Will the Bubble burst or surprise us?
Established in 2009 after the financial meltdown, Bitcoin is a digital currency that has no central bank or regulatory authority backing it up. The digital coins are stored in a digital wallet or on the cloud and can be used in transactions.
A single Bitcoin has hit $10,000 (£7,495) for the first time.
Over the past one year, the value of the digital cash has reportedly jumped 1,000 per cent. With such spiralling prices, should investors see this as a reason to invest in the cryptocurrency or not?
3 reasons to invest:
- Bitcoin has seen a 55 per cent increase in transaction volume this year. Daily currency exchange volume is $5 trillion and Bitcoin’s volume is only expected to rise from here as it is still in its infancy.
- Unlike other currencies, the ‘true value’ of Bitcoins cannot be determined using traditional financial analytical techniques. Bitcoin believers say it the formation of a new asset class that could join stocks, bonds and physical commodities in the investment portfolios of ordinary people.
- The currency has been gaining growing acceptance. Japan made Bitcoin a legal tender this year. Reports also suggest that over 260,000 food establishments and retail locations stores are accepting cryptocurrency now. Australia has also stopped double taxing crypto currencies as assets from July. There are also increasing rumors that Amazon will soon begin accepting this cryptocurrency.
3 reasons to avoid Bitcoins:
- While the value of Bitcoin has been growing, the World Coin Index image chart below shows that the volume of Bitcoin transactions has not grown at a similar pace. This means that those investing in Bitcoins are simply speculating on its value rather than actually using the currency to buy goods.
- China’s crackdown on the digital currency this year along with increasing concerns around the security of the cryptocurrency. Last year, almost 120,000 bitcoin were stolen from a Hong Kong-based cryptocurrency exchanges, which immediately resulted in a 20 per cent drop in the value of the currency at the time.
- Many have also accused the digital currency of becoming a ‘safe haven’ or the preferred way of transfering money without dealing with banks or using the local currency during inflation. Just like the case of Zimbabwe where the price of bitcoin jumped to double the international rate after the military takeover of the region.