What on earth is driving the astronomical rise in the value of the Bitcoin cryptocurrency? I mean, as of 17 December 2020, you needed twenty-three thousand US dollars ($23,000) to get just one bitcoin. Governments have tried to kill Bitcoin, but it seems as if the harder they try, the hungrier folks, and now, billionaires and enterprises, are, for the currency.
This column in Daily Trust has followed Bitcoin development from the start. As a testament, these are a few of the previous articles on Bitcoin that have appeared in this column in Daily Trust: Tax imperatives of Bitcoin trading (29 January 2018), Ooh la la, $75 million in bitcoins stolen by hackers! (11 December 2017), One bitcoin is now worth more than $10,000! (4 December 2017), Bitcoin now worth more than gold (5 June 2017), Minting Bitcoin (1 May 2017), Understanding Bitcoin adoption (24 April 2017), Whither Bitcoin trading? (4 May 2015), Exploding interests in Bitcoin? (17 February 2014), Understanding Bitcoin (2 December 2013), Digital money won’t go away (13 March 2013), and Bitcoin – The reality of digital currency (10 December 2012).
Of course, Bitcoin is Internet-based money, which can be used to pay for your purchases, and can be exchanged for the more popular paper currencies – dollars, Pound Sterling, and Euro. Bitcoin has survived several events that have tended to undermine it. These events include the U.S. government’s celebrated arrest of a big Bitcoin trader in January of 2014, the Chinese government’s clamp-down on Bitcoin trading in the government-controlled banks in that country in 2014, and the dissolution in 2014 of Mt Gox, the flagship Tokyo-based Bitcoin exchange that filed for bankruptcy, taking down with it almost half a billion dollars-worth of people’s bitcoins.
These events have not killed the interests in Bitcoin. In fact, as far back as 2015, many governments, including the U.S., Canada, Germany, France, Hong Kong, Italy, Japan, Spain, and the United Kingdom have given Bitcoin trading a legal status in their countries. Why are folks interested in Bitcoin over a government-controlled currency such as the dollar, Euro, or Naira? One reason is the ability to carry out global transactions without going through all those “barriers” that the banks and, sometimes, the governments, represent. You do not need bank accounts or credit cards to get and spend Bitcoin. The currency also offers privacy and an easy, fee-free way to transact business across international borders. The currency cannot easily be confiscated by any government, implying security! The proliferation of Bitcoin ATMs has simplified Bitcoin transactions.
On the flip side, the main issue with Bitcoin is its volatility. As I have said before, “Somebody coughs, and the currency takes a nosedive in value.” Moreover, Bitcoin is not backed by any currencies, so there are no verifiable assets that can be liquidated to pay users should something go wrong. So, you can literally lose all your Bitcoin wealth in a wink of an eye.
A problem with Bitcoin is the lack of regulation, as the currency is not under the direct influence of any country. The currency is quite convenient for paying for anything, including illicit drug trafficking and for money laundering. There is also the lack of security on the web. If anyone gets hold of your private key, they can gain access to your Bitcoins and move (steal) them.
In the 4 December 2017 article in this column entitled “One bitcoin is now worth more than $10,000!” I recapped the evolution of the currency: “Between February 2011 and April 2011, one bitcoin, the digital money, was worth only $1. When the first article on Bitcoin was written in this Daily Trust column on 10 December 2012, one Bitcoin was worth $13. As at the last article on Bitcoin in this column, which is 5 June 2017, a single Bitcoin would fetch you $2,443. As of Monday, of last week, 26 November 2017, if you had one bitcoin, you could get $10,000 for it. A few days ago, the figure was $10, 800. In fact, from the beginning of this year, the value of one bitcoin to the dollar has increased 11-fold. What is going on?” That was in December 2017.
Today, on 20 December 2020, you will get over $20,000 for a bitcoin. So, why is the value of Bitcoin skyrocketing? According to Investopedia.com, four main factors are suggested: To hedge against inflation in these difficult times, investors have sought assets that either maintain value or appreciate. “Over the course of 2020, this search for a store-of-value asset to hedge against inflation has brought them to Bitcoin.” Basically, there is too much dollar in the market, lowering its value. Using Bitcoin as a safe haven to mitigate against the falling dollar value makes sense to many. Also, the halving of Bitcoin reward mining proves the scarcity of Bitcoin, leading to a high value. Scarcity drives demand! Institutional adoption of Bitcoin, both as investment vehicle, and as a service that can be provisioned, enhances the confidence that people have in Bitcoin. Finally, the infrastructure built around Bitcoin seems to have matured a great deal over the years, which translates into easier and safer Bitcoin investment.