3 questions about the bitcoin price surge
The price of bitcoin seems to keep rising with no end in sight, peaking this month at $17,000. That's nearly a threefold increase in price within less than a month.
On one hand, bitcoin early adopters feel vindicated in their support for the currency through the ups and downs over the past few years. However, some experts are concerned about bitcoin's meteoric rise.
Observers both inside and outside the cryptocurrency community have watched bitcoin's seemingly unstoppable rise in value and wondered what's behind it, how long it can last — and whether bitcoin can survive a crash.
What's going on?
A number of factors can cause the price of a commodity to skyrocket. Some experts have suggested that the bitcoin price explosion began when traditional financial industry players finally started paying serious attention to the currency.
"The bitcoin price is at an all-time high due to institutional money finally starting to flow into the cryptocurrency market,"," StormX CEO Simon Yu said in an interview. "Recently, announcements from the South Korean Bank Hyosung in support of bitcoin; from CME Group announcing they'll be launching a bitcoin futures market; and from Square Cash announcing bitcoin will be supported caused bullish behavior in the market, pointing to a major shift."
The sheer excitement over bitcoin as its value climbs has fueled momentum in the form of additional investment and higher prices. It has also propelled bitcoin into a much wider public spotlight.
"The general public is starting to realize [that] cryptocurrency is beginning to be adopted to mainstream markets." Yu said. And it will continue an upward trend as they see the potential for more companies to adopt cryptocurrency."
Is it sustainable?
The next obvious questions are how long bitcoin's winning streak can last, and whether we are bound to see a spectacular crash in value before too much longer. Some experts believe a crash a crash is inevitable, and worry about the effects of a sudden influx of neophyte speculators trying to make a quick buck.
"Investors unfamiliar with crypto are piling new money into bitcoin right now, making the situation highly unstable as investors expect the price of bitcoin to keep going up," Christopher Grey, chief operating of Caplinked, said in an interview. "Any declines could be exaggerated dramatically because they are not stable owners of crypto."
Grey also said that investors might pour in funds from liquid investments such as growth stocks and junk bonds, which would in turn devalue those investments.
"Either way, this situation is not stable and cannot continue for an extended period of time," Grey said. "Something needs to give in one of the risk markets, as liquidity in these markets is not infinite and nothing here is being created — just moved from one risk market to another by speculators. This didn't matter when total crypto value was small, but at these levels of hundreds of billions in value, it becomes a substantial user of global risk capital."
Abhishek Pitti, CEO of Nucleus Vision, agrees that a sudden crash in value is inevitable; historically this kind of tremendous growth in bitcoin value has never been sustainable.
Will a crash kill bitcoin?
There is always a possibility that bitcoin could depreciate so much in value that it will useless for either investment or use as currency. That said, it's more likely that bitcoin will persist and carry on.
"Naysayers may still say bitcoin is a bubble, but very few would argue it’s worthless or a scam, yet only a year ago this was a common narrative," Loomia Blockchain Director Sol Lederer said in an interview. "Bitcoin’s future is still uncertain; it faces the same serious technical challenges it has for years, and faces stiff competition from newer, more sophisticated blockchains. But even if it were to crash, it’s apparent that bitcoin is here to stay. Whether it trades at $10,000, $5,000, or $500, it’s not going away."
Jon Chou, CEO of Bee Token, pointed out that the blockchain space is still relatively new and still has plenty of room for growth. In November there were 700,000 bitcoin addresses, a relatively small number compared with the number of people who could benefit from bitcoin — for example the many millions of unbanked adults around the world. If a large portion of this population were to begin using bitcoin, we might see another boost in value.
In its short history, bitcoin already has seen ups and downs, and will likely see more. But, as the saying goes, the bigger they are, the harder they fall. The world has never seen virtual currency quite so "big" as bitcoin is now. We'll learn a lot more about its durability after we've see the first really big fall — whenever that finally occurs.
Bradley Cooper is a Technology Editor for DigitalSignageToday.com. His background is in information technology, advertising, and writing.www