Bitcoin: Risk or future?
The stellar increases experienced by the cryptocurrency this year mask the strong oscillations that it has suffered along the way. Investment experts warn of the risks posed by such an asset.
As a result of the recent enthusiasm for bitcoin, the infrastructure that supports this digital currency has begun to creak under the large volume of trading and its volatility. The price of bitcoin is around $ 17,000, an increase of more than 1,500% since January. While previously considered an asset for technophiles, it is now gaining more acceptance because of Wall Street's interest in taking advantage of its popularity.
But these gains mask the rapid changes it has undergone. Many of the trading platforms, such as Coinbase, have problems when investors try to sell assets in large quantities.
The same happens with traditional institutions: Chicago Board Options Exchange (CBOE) Global Markets, the US derivatives exchange, had to stop trading twice on Monday after launching the first futures contracts on bitcoin.
For bitcoin advocates, convinced of their potential to transform the economy, these are only small drawbacks.
However, critics warn that the craze with bitcoin shows all the signs of a bubble out of control.
A collapse could affect the entire financial sector. There are many cases of people buying crypto products through credit cards, mortgages and loans.
From fever to trend
Born in 2009 as a result of the financial crisis, the origin of bitcoin is in the search for a free exchange that is not dependent on the central bank. In a first phase, it gained followers among computer experts, political activists and other groups that had lost confidence in traditional institutions. This dissatisfaction with the status quo seems to be shared by his most recent followers. A survey of the CoinSpectator cryptocurrency website showed that 61% had bought bitcoins in the last year.
"People think their money is safer in a decentralized system without borders," explains Matthew Buck, co-founder of the hedge fund Blockchain Capital.
In one year, Buck has turned 14,000 pounds into a million. It does not have immediate plans to make cash because it is convinced that one day the virtual currency and the technology that supports it will be a means accepted by all to make payments in real time.
Of the 16.7 million bitcoins in circulation, more than 35% has been spent or negotiated in the last year, according to data from Chainanalysis, while about 20% is in the hands of "strategic investors". Much of the rest has been unused for years.
The lack of liquidity and the price fluctuations can impose severe limitations for the use of bitcoin as currency for transactions. However, a global network of more than 400 unregulated platforms has emerged to provide capital crypto-markets. Speculators share information in forums, Twitter and YouTube.
According to CoinMarketCap, in the last week they have negotiated bitcoin worth 80,000 million dollars.
More conventional companies are entering the sector. As CBOE has already done, the Chicago futures market operator, its rival CME Group will launch futures on bitcoin next week, and the Nasdaq plans to do the same next year. Investment banks such as JPMorgan Chase analyze whether they allow these futures to be traded, and Goldman Sachs studies a similar role in the face of customer demand.
The betting platforms also allow trading in the market. And the number of hedge funds that invests in cryptocurrencies has tripled from 55 at the end of August to 170, according to the analysis firm Autonomous NEXT. The greater institutional interest has given legitimacy to the currency. But investment experts warn that there are still many risks.
Correction
John McAfee, an expert in cybersecurity, has predicted that the price of bitcoin will reach one million dollars by the end of 2020. At the other extreme, other experts say that its value will fall to zero.
In the middle term, there are those who suggest that there will be a correction in the price. "Anything that goes up 900% without a solid base will drop at some point," says Andreas Antonopoulos, author of Mastering Bitcoin and The Internet of Money.
Sara Feenan, director of the block-chain technology company Clearmatics, believes that sudden falls could occur due to an event such as the hacking of a stock market.
"Institutional investors tend to be opportunistic, entities take out money in search of short-term profits, and large operations are what can make the market swing," Feenan says. Even so, few experts see signs of a sudden change.
Another risk is that hackers reach digital safes in which bitcoin investors store their cryptocurrencies. MtGox, once the best known place to buy and store bitcoin, lost 850,000 coins (which were then worth 500 million dollars) before going bankrupt in 2014.
"Investors are not protected against fraud, fraud and hackers," recalls Lilian Chovin, head of investment at Coutts bank, who has not introduced bitcoin in his investment strategy.
The wrath of regulators
The anonymity enjoyed by users has encouraged criminal activities. Regulators study how to provide protection to investors, although the nature of bitcoin could hamper their efforts. The authorities of the different countries have adopted very different strategies. China has tried to prohibit the exchange of cryptocurrencies, while Japan has regulated bitcoin as a means of payment. The Securities Market Commission (SEC) warned this week of the risks of trading cryptocurrencies, but did not take any action.
Limitations of technology
To survive in the long term, bitcoin will have to overcome the challenge posed by other potentially more efficient cryptocurrencies.
Alternative currencies such as the ethereum, the ripple, the litecoin and the dash have also registered spectacular increases this year.
Countries like India, Russia and China are considering introducing their own cryptocurrencies.
Although bitcoin plays with the advantage of being the pioneer, there is a limit on the number of transactions that the bitcoin network can process at the same time. This has caused delays in some operations.
If it were to become the reference cryptocurrency, its mechanism would have to improve to allow it to increase the frequency of payments and smaller amounts in its operations.
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