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Just four days into the New Year, investors trading bitcoin in 2017 were already experiencing a boom after its value hit the roof and went way above the $1,000 psychological ceiling. On January 4th, 2017, the value of bitcoin, the crypto currency that has caught the attention of many globally but only a few understand how it operates, shot up to $1,153.02. This was about $13 shy of the all-time high, it hit on November 30th in 2013 when its value reached the highs of $1,165.89. In addition, this was the second time bitcoin had blown the $1,000 mark in its eight years of existence.
The hype surrounding the rise in the value of bitcoin was, however, short-lived. About 10 days after the digital currency hit new highs in value, the Chinese government issued a statement that saw bitcoin value drop drastically in a matter of days. In their statement, the Chinese government through People’s Bank of China said that its representatives had met with the major bitcoin exchanges based in China, to review and reinforce the importance of the digital currency sector operating within the relevant laws and regulations. This news sent negative sentiments across the bitcoin markets and prices started falling. By January 18th, 2017, the value of bitcoin had fallen by about 25%, to trade at about $869.
In a similar fashion, in 2013, when bitcoin value went up beyond the $1,000 mark to trade at its all-time high of $1,165.89, the People’s Bank of China (PBOC) intervened and the price started tumbling down on a free fall. Back then bitcoin technology had not gained much popularity like it has done today, and everyone from regulators to individuals viewed it with skepticism. After seeing how fast bitcoin had gained so much value within a very short period of time, PBOC sent out a statement stating categorically that bitcoin was “not a currency in the real meaning of the word.” It further went ahead to restrict financial institutions from dealing with the technology, and this resulted to the drastic fall in the value of bitcoin towards the end of 2013.
Just like in 2013, in 2017 the People’s bank of China seem to be having a huge influence on the direction the value of bitcoin takes, based on the statements it releases from time to time. With China being the country with the most bitcoin transactions globally, when the bitcoin market in the country is disturbed, the global market feels the shock waves too; just like it happened at the beginning of this year.
Understanding the Intrinsic Value of Bitcoin
Although the popularity of bitcoin has grown over the eight years it has been in existence, still, there are a lot of misunderstanding about what it really is and how it is transacted. This lack of knowledge has led to some people relating it to Ponzi and Pyramid schemes, while others regard it as a mysterious currency for a secret society. However, a deeper analysis of the foundations and the operations of bitcoin reveal that the above fears are far-fetched and that bitcoin is actually a very important and timely innovation in the financial sector.
Bitcoin operates on the blockchain technology which basically is an open ledger on the internet where different bitcoin transactions are entered and they can be viewed by all people from anywhere in the world. The bitcoins are generated through complex computer algorithms in a process referred to as mining and then sold to interested bitcoin users. To transact online using bitcoins, one need to open a bitcoin account and then you are given a unique address that is made up of between 27 to 34 characters which act as your online postal address, where your bitcoins are deposited, and then you can start transacting from there.
By its very nature, bitcoin derives its intrinsic value from the networking effect, whereby the more people use it, the more valuable it becomes. In addition, the lack of censorship and government interference in bitcoin transactions makes it more attractive and adds to its value. On the other hand, the fact that one can send and receive bitcoins anytime and make payments without having to go through a central clearing house hastens business transactions. All these factors combined make bitcoin a unique currency that is poised to revolutionize the financial sector globally.
As the digital currency continues to gain popularity, and more people get to understand as well as to use it, investors are also starting to eye it. However, not all investors are viewing it from the same perspective. Some see it as a new asset class that cannot be ignored since it is setting a foundation for an overhaul of the global financial sector in days to come. To such investors, an early entry into the bitcoin sector will be a win for them in the long-run. On the other hand, there are investors who look at bitcoin on the lens of its volatility over the years and regard it to be too risky for their portfolios. All in all, after eight ears, since it entered the market, bitcoin has made huge strides in terms of acceptance and it is expected to be mainstreamed in various economies gradually in the coming years.