Bitcoin rollercoaster stabilizing —
so what comes next?

The cryptocurrency Bitcoin came into existence at a time when the global financial markets were trying to recover from the 2008 financial crisis. Lehman Brothers, ranked 4th among US banks, declared bankruptcy ($639 billion in assets and $619 billion in debt), thereby accelerating the financial crisis.

After the market instability of 2008, the primary attraction of Bitcoin was to create a currency independent of the government and financial markets. 

Bitcoin was created by a developer or a development group that operated under the name “Satoshi Nakamoto.” Despite the best efforts of journalists and others, no one has yet succeeded in identifying the creator.  

The currency is based on a cryptographic principle: a unique combination of ones and zeroes. Thanks to the open source code, those who want to get Bitcoins have the opportunity to generate new codes and receive new crypto signs (currency). This process is called mining. However, an indispensable prerequisite is powerful computer engineering.

On August 18, 2008, the domain name bitcoin.org was registered. And on October 31, the white paper “Bitcoin P2P e-cash paper” officially introduced the cryptocurrency to the world community. As the document says, Bitcoin allows transactions without engagement of financial institutions. It makes financial transactions anonymous, since they are registered only on the account of the wallet owner on the website bitcoin.org. From 2009 to 2019, the Bitcoin exchange rate showed both rapid growth and substantial devaluation or a sharp depreciation.

In 2009, 1 US dollar was equivalent to 1,309.03 BTC. Due to the high cost of electricity, mining crypto coins was unprofitable. But already in 2010, that changed dramatically with the foundation of the first Bitcoin Market exchange. And by the end of that year, the rate had reached one dollar. However, while Bitcoin had managed to gain trust in the financial markets, once again it had to win it back because of the hacking of an electronic wallet on June 13, 2011 and the theft of 25,000 coins. And on June 19, hackers reached the MtGox exchange and stole more then 2000 bitcoins from customers, sending thousands of fake coins. As a result, a sharp collapse of Bitcoin followed.

With the dawning of 2012, the rate rose once again when the Bitcoin was recognized as a currency unit. And in 2013, from February 22 to March 22, the exchange rate increased from $30 to $74.9. Starting from April 1, it jumped to 266 US dollars. Nevertheless, on April 20 there was again a sharp collapse to $109. One of the reasons for that was the arrest of the founder of the Silk Road site, which used Bitcoins as currency for the sale of drugs. In 2012, the Silk Road platform was the only one regularly using Bitcoin payments. To avoid risks related to the cryptocurrency volatility, hedging technology was used.

In 2014, there were also many events that influenced the Bitcoin exchange rate. Among those were China returning the large Chinese exchange BTC to its usual mode of operation; Irish companies and entrepreneurs began to embrace Bitcoin over the euro, with many switching to bitcoin; Charlie Shrem, vice-chairman of Bitcoin Foundation, was arrested on suspicion of money-laundering and supporting users of Silk Road in making illicit bitcoin exchanges. In 2014, the Bitcoin rate soared from $770 to $1,000, and then fell to $700. The cryptocurrency’s reputation was enhanced when the US government withdrew 29,000 cryptocurrencies owned by Silk Road members.

But the real take-off of Bitcoin’s value began in 2017. It can be explained by a number of reasons, primary among them: 

  • Bitcoin was recognized as a means of payment in Japan.
  • Australia decided in the summer of 2017 to abolish the tax on buying virtual coins (including Bitcoin); 
  • The Chinese cryptocurrency exchanges resumed their use of Bitcoin. 
  • Bitcoin became a means of investment, attracting the attention of large financial companies such as American multinational investment bank JP Morgan Chase and Spanish multinational commercial bank Santander. 
  • Crypto-speculation on illegal trading was activated.
  • And in December 2017, the Chicago Board Options Exchange became the first US-based exchange to allow trading of Bitcoin futures.

Bitcoin’s price in 2017 

By analyzing the history of Bitcoin, it can be concluded that the currency has demonstrated high volatility like no other. And although the original idea was to make the currency completely autonomous and independent of any organizations, financial institutions and governments, the exchange rate directly depends on changes in the political, economic and social climate, which includes legislation. The lion’s share of the influence, however, is exerted by participants of the cryptocurrency market. The anonymity of transactions made bitcoin attractive for the dark market and as a means of all kinds of financial speculation.

How the exchange rate reached unprecedented levels, and still grows  

One of the reasons for the growth is that blockchain technology has improved over the years of the currency’s existence, and that underlies all bitcoin transactions. Mike Kayamori, co-founder and CEO of Liquid Group Inc., the Japanese global financial technology company, said ”The blockchain is a basic infrastructure consisting of a block of data interconnected, and not in a single database. Any falsified transaction information leads to the break of the entire block.”

He also noted: “Bitcoin can be used anywhere in the world. You can send it from one country to another across the world in real time for almost no charge. There had never been anything like that before.”

In addition, since 2018, the volatility of the currency has fallen by 98%, as noted by analyst Omkar Godbole of Coin Desk Markets. Data on Coin Market Cap shows Bitcoin volatility (difference between the minimum and maximum prices) on January 16, 2019 as $61, compared to the $3.468 seen just one year earlier. The analyst associates such dynamics with a sharp decline in speculative trading. In his opinion, a long-term decrease in volatility leads to the advancement of the currency, and BTC may go beyond the limits of the six-day trading range of $ 3500-3700.

Over 2018, the Bitcoin volatility index fell from 9.16% to 3.6%. The index estimate for 2019 is 4%, , which is only 1.36% more than in 2018. The relatively small fluctuations point to the expectation that Bitcoin currency is growing more stable. On August 9, the rate of bitcoin was 1 BTC = 11718.364 USD, according to bitvol.info.

Volatility of Bitcoin, January 2019

VHow do experts see the future of bitcoin?

Head of Fundstrat Global Advisors, Tom Lee, said to CNBC: “Cryptocurrency is a hedge against global risks, amid the U.S.-China trade conflict and currency war. He also added:  “Last couple of years, it’s been really correlated to dollar (sic). Weak dollar has been good for bitcoins. … And it’s been really correlated to risk markets. This year, it’s steered away from the dollar because dollar’s been strong, bitcoin’s been up, which is a real breakage. It’s gone negative on correlation to the equity markets…Cryptocurrency positively correlated to gold.” (sic)

Online broker Naeem Aslam, analyst for ThinkMarkets, said in an interview with Fox Business that the price of bitcoin will conquer new peaks, in the range of $60,000 – $100,000. According to Aslam, $20,000 and $ 50,000 are now important price points for bitcoin. He agrees with Lee that the cryptocurrency growth rate is driven by the US trade war with China, the involvement of institutional investors, the risks of a new military conflict in the Middle East, and the uncertainty in the stock market.

That notwithstanding, bitcoin continues to hold the leading position among the 2,310 cryptocurrencies.     

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