The price of a bitcoin doubled last year, and has doubled again so far this year to around 2,800 dollars. In the wake of bitcoin’s recent surge, almost $4billion was wiped off its value. But the correction didn’t last long, and the price began to climb again. So what’s all the hype about? There are several key factors driving the current bitcoin boom.
Major investors are interested
Amid global political and economic uncertainty, investors have been turning away from traditional stock and bond markets, which have been shaken by big events from the Brexit vote to the US presidential election.
Ron Quaranta, Chairman of the Wall Street Blockchain Alliance, told Bloomberg that institutional investors, such as banks, insurers, pension funds, hedge funds and asset managers, are beginning to view bitcoin and its rival cryptocurrency ethereum as a new type of investment.
“Bitcoin and Ether and all these cryptocurrencies are representing a different type of asset class; a different type of tradeable commodity. Investment managers are our fastest growing demographic,” he said.
He also believes that what investors are really betting on is the success of blockchain – the groundbreaking technology behind bitcoin.
The bitcoin surge has been driven in part by increased investor interest outside of the US, particularly in China, South Korea and Japan.
There is also speculation that wealthy Chinese investors are using the cryptocurrency as a way of getting around controls that limit capital outflow from the country.
And we may well see an official bitcoin exchange-traded fund in the near future. Although the proposed fund was initially rejected by the US Securities and Exchange Commission, the regulator is reviewing its decision, a move that has further pumped up confidence.
More and more people are using it
Despite being dismissed as a passing fad, bitcoin has been gaining in popularity and legitimacy. In Japan, for instance, new legislation allows retailers to begin accepting it as legal tender.
And the Russian government, which was previously hostile to bitcoin and other cryptocurrencies, is making moves towards accepting them.
Many banks now trust bitcoin enough to use it for payments. CNBC reports that 10 financial institutions signed up with cryptocurrency platform Ripple in May to send real-time international payments. They joined a roster of clients that already included Bank of America and RBC.
A growing number of retailers accept bitcoin. A recent Cambridge University study estimates between 2.9 million and 5.8 million people use cryptocurrency wallets. It’s easy to buy bitcoins, and there is now a Bitcoin Visa Debit card which makes spending them easier.
A ‘bitcoin scaling agreement’ has just been reached
Bitcoin is not without its issues. Chief among them is the fact that the settlement process, known as “bitcoin mining”, is struggling to cope with the number of transactions. Bitcoin technology is not owned by anyone, so any changes have to be agreed by the bitcoin community.
For years, those involved in bitcoin’s software development have argued over how to overcome capacity problems. However, a bitcoin scaling agreement was recently reached by the Digital Currency Group, which represents 56 companies in 21 countries, at the blockchain technology summit Consensus 2017.
Have you read?
Bitcoin is not the only cryptocurrency that has soared in recent weeks. Its rivals, including the number two cryptocurrency ethereum, have also hit record highs.
Bitcoin is a volatile and risky investment. And a few weeks or months from now, its price may look very different.