Financial and Monetary Systems

This is what's driving the bitcoin boom

A Bitcoin (virtual currency) paper wallet with QR codes and a coin are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, May 27, 2015. British authorities have come out in support of digital currencies in the name of promoting financial innovation, while proposing that regulations should be drawn up to prevent their use in crime. But it is technophiles who are leading the drive to make London a real-world hub for trade in web-based "cryptocurrencies", of which bitcoin is the original and still most popular.   Picture taken May 27, 2015.  REUTERS/Benoit Tessier - RTX1EWTP

Bitcoin is a relatively liquid asset, which means that investors can get in and out quickly, taking advantage of any price gains. Image: REUTERS/Benoit Tessier

Alex Gray
Senior Writer, Formative Content
Share:
Our Impact
What's the World Economic Forum doing to accelerate action on Financial and Monetary Systems?
The Big Picture
Explore and monitor how Innovation is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Innovation

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?

The competition

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.

Image: The Economist

The total market capitalization for the world’s cryptocurrencies is more than $60bn, having trebled since the start of 2017. But some argue that this is a bubble waiting to burst.

Bitcoin is a volatile and risky investment. And a few weeks or months from now, its price may look very different.

Loading...
Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Financial and Monetary SystemsEconomic Growth
Share:
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

US jobs market, Japanese inflation and other economics stories to read

Joe Myers

May 24, 2024

About Us

Events

Media

Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum