Bitcoin investors and interested third parties are rife with speculation as to what is going to happen over the next few months. Bitcoin values have surged and continue to do so, surpassing the magical US$4000 per coin value this month and it currently sits at around US$4300. But does this still represent good value, or is the virtual currency experiencing a surge based on false indicators?
Due to the nature of bitcoin, speculators seem to be searching out “insider information,” that is not available to anyone else. People are also talking about old indicators, such as localised uptake and mining rates which have little or nothing to do with the current upswing in the value of the currency.
The major reason for the increase in value is that bitcoin and the blockchain have become more mainstream and are experiencing significant uptake at an institutional level. A quick Google search will show that major institutions are now including bitcoin on their investment advice channels, and making recommendations – both positive and negative – to potential investors and customers. This is important not because of the nature of the recommendations, but because they exist at all. Goldman Sachs and other major financial institutions are finally regarding bitcoin as an investment complimentary to more traditional products, and the Wall Street Journal covered the rise past the $4000 mark with a front page story. A few years ago, this type of thing would have been unthinkable and now with the mainstream media and credible financial institutions paying attention, it’s logical that the value would see a significant upswing.
The upswing itself is the reason for both optimism and concern. Speculators are falling into two camps; those who see large bulk purchases as a good thing, and those who recognise the potential downside in the event of a sell-off.
Major investors have the ability to impact upon almost any entity due to their purchasing power – and their ability to sell quickly. These organisations represent a double-edged sword and should the tide start to swing away from bitcoin, there is a significant chance that the downward swing could be as monumental as the rise was. While large institutions do add an aura of stability to bitcoin, it also makes growth potentially precarious if, at least for the medium term, there isn’t a period of stability and ongoing growth.
The publicity from the mass media also means that uneducated investors are leaping onto the currency and pushing the price up even further. Mainstream investment has undoubtedly had significantly less impact than larger institutions, but it’s still an important part of the market as “mum and dad” investors purchase some virtual currency as part of their own investment portfolio. Up until now, the media has had little to do with bitcoin, apart from the occasional pros and cons piece that served to explain what the crypto currency was and make estimates as to what its future may hold. Now, with bitcoin being seen as a viable investment alternative, or even something more, the news media has significant power to control the attitude of investors.
The future of bitcoin remains somewhat precarious and the next few months will be telling. Should there be no significant change in the economic climate and if the currency can maintain at least stability over the next period, it could be an exciting time for virtual currencies and a transformational period for financial institutions.