Bitcoin

Bitcoin’s spectacular ascent to the fore of the financial markets and media in 2017 means that it is undeniably something to keep a close eye on this year.

Indeed, J.P. Morgan boss Jamie Dimon publicly stating that he ‘regretted’ calling it a fraud in September is an apt epitome of how the cryptocurrency (and indeed, the cryptosphere in general) is being accepted by an increasing amount of people.

One cannot understate just how much Bitcoin has increased in value since early 2017. Bitcoin has seen an approximate twenty-fold rise since January last year, and reached a high of just under $20,000 before experiencing a minor crash – nothing new in the cryptosphere. Its current price stands at around $14,000, with a market cap of $238bn.

What to Expect

There are several reasons to be bullish about Bitcoin in the coming year. Foremost, an increasing number of major companies have decided to accept the currency as an official form of payment – accounting firm PwC, tech giant Microsoft and online retailer Overstock have set a likely precedent for other major companies to follow by accepting the digital currency.

Further, the decision late last year to begin issuing Bitcoin futures on the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE) demonstrates market confidence that Bitcoin will be here for the long-term. The plans of Goldman Sachs to introduce a designated trading desk for Bitcoin is also symbolic of the fact that an increasing number of major institutions are willing to accept cryptocurrencies – and adapt to them.

In the words of Dimon: ‘the blockchain is real’.

Lingering Doubts

As more companies begin to accept Bitcoin as a form of payment and its utilisation continues to grow, taking a bearish stance on the cryptocurrency going into 2018 may seem amiss – however, it is understandable. South Korea’s recent decision to tighten rules on Bitcoin – by seeking to limit how conventional banks interact with it – adds to the list of several countries that have sought to curtail the influence of the currency.

Indeed, in a development related to South Korea’s aforementioned action, Bitcoin’s price crashed after global pricing index CoinMarketCap removed Korean exchanges from their calculations.

China’s decision to crack down on Bitcoin mining operations – aiming to completely ban them by the end of 2018 – is further evidence of some countries’ dissatisfaction with the cryptocurrency.

There seems to be a trend of countries in Asia being wary of cryptocurrencies in general. Indonesia has plans to outlaw cryptocurrency transactions from early 2018 onwards, with the goal of protecting its local currency. Similarly, Vietnam also plans to implement a ban on payments that use cryptocurrencies in 2018.

Merrill Lynch’s decision last week to impose a ban that will stop clients from investing in a Bitcoin fund is also a sign that institutions remain wary of the cryptocurrency; the “suitability and eligibility standards of this product” were cited as part of the reasoning for the ban. The restrictions on the trading, usage and investment in Bitcoin from countries worldwide thus provides sound reasoning to be bearish about the cryptocurrency.

Competition

Bitcoin’s opposition may not only come from worldwide governments; other cryptocurrencies, and their increasing popularity, could potentially impact the future usage of Bitcoin. Particularly worth mentioning is Ripple, the distributed open source protocol and consensus ledger. Its own currency, XRP (known as ripples) has increased by a staggering amount – from roughly $0.006 at the beginning of 2017 to just over $2 at the time of writing (it had reached $3 before a recent depreciation of the price).

Its ultra-fast transaction times (3.6 seconds, as opposed to 4 hours on Bitcoin), low transaction fees and widespread backing from financial institutions and banks (the company has recently partnered with American Express) will likely make it a worthy rival to Bitcoin in the future.

Ethereum, IOTA and Litecoin should also be looked out for, as they could challenge the world’s most valuable cryptocurrency going into 2018. The price of Ethereum, an open-source distributed computing platform which is also based on the blockchain, has increased by 300% in the past three months. Similarly, IOTA – which interestingly does not use the traditional blockchain, but rather its own ‘Tangle’ – has tripled in value in just over a month. Litecoin, which processes transactions four times as quickly as Bitcoin and has four times as many coins, has also seen impressive growth – its value has increased by 150% since early December.

Conclusion

Bitcoin’s significant rise throughout 2017 means that it will continue to be at the centre of financial news in the coming months, and most likely years. Its challenges for the next 12 months include potential regulation and restrictions from national governments and withstanding competition from other cryptocurrencies.

However, its increasingly widespread adoption and usage across the globe, as well as it remaining the official ‘king’ of cryptocurrencies, might make an investor confident in its sustained growth. Whether they would be right remains to be seen.