The bitcoin mania continues: The cryptocurrency surged about 15 percent just this week. What's going on with bitcoin? It depends on who you ask. There is a strong division between those that are avid believers in this cryptocurrency and those who think it's all a big scam.
Bitcoin, of course, is a decentralized digital currency created by an unknown person or group of people in 2009. This digital payment system enables buyers and sellers to transact directly, avoiding things such as financial institutions, central banks, regulatory authorities and credit checks. The payment system is highly regarded as hack-proof because of its key “block-chain" technology, a decentralized online ledger that tracks every single transaction.
Bitcoin proponents believe that it is the future of payments and has the potential to eventually transform the financial markets. In a paperless and cashless society, they would trust bitcoin more than cash, and point to the 2008 financial crisis to make their case. Despite all the harsh criticisms and skepticism since its inception eight years ago, bitcoin has weathered them all out and continues to rally strong.
While it's hard to generalize, bitcoin fans are often independent thinkers and technology-driven. They may even be housewives and grandmothers.
Bitcoin skeptics, on the other hand, have concerns over the cryptocurrency's lack of transparency, compliance, regulations and its potential impact on economic systems. People cannot even agree on whether to call bitcoin an asset class, let alone on how to calculate its intrinsic value. Mark Bristow, CEO of gold-mining operation Randgold Resources, recently said that cryptocurrencies “undermine the value of traditional money" and called bitcoin the “underworld of currencies." Nobel Prize-winning economist Joseph Stiglitz went even further, saying bitcoin ought to be outlawed.
People who distrust bitcoin are primarily professionals operating in highly-regulated industries where risk needs to be intelligently quantified and monitored. They may also have a good track record in calling the market on stocks and bonds.
My View: The reality is, with a market value now exceeding $300 billion, it is hard to dismiss bitcoin as a mere fantasy. Yet it continues to operate with no regulatory guidance. Given that reality, it is likely to continue experiencing high volatility moving forward.
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