It has been a wild year for bitcoin and although the currency has been around for the last five years, 2013 is when most investors started to pay attention to the crypto-currency; the enthusiasm for bitcoins even propelled prices to briefly trade higher than gold.
According to bitcoin specialists, the electronic currency is still in its infancy and faces a lot of questions; however, some investors are not afraid to start testing the waters.
“You can definitely say that 2013 has been the year of the bitcoin,” said Guillaume Babin-Tremblay, executive director of the Bitcoin Embassy in Montreal, Quebec.
Bitcoin made headlines on Nov. 29 as the price of a single coin hit an all-time high. Mt. Gox one of the original and biggest bitcoin exchanges, based in Tokyo, recorded the high at $1,242 per coin. For comparison, during the same day spot gold prices hit a session low of $1,240 per ounce.
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Babin-Tremblay said that at the start of the year a single bitcoin could have been purchased for around $12, a gain of 10,250% from the year’s high. However, since hitting its all-time high, prices dramatically dropped, and on Dec. 10 prices were hovering around $961 per bitcoin, a drop of 28% in less than two weeks.
Although bitcoin has attracted a lot of attention in the last few months, Babin-Tremblay pointed out that the currency actually started to gain popularity earlier this year as a result of the Cyprus banking crisis. In March the government of Cyprus announced a bail-in for banks, meaning that the financial institutions would have to impose losses on their shareholders, debt holders and even large depositors.
After the bail-in was announced people ended up rushing to their bank accounts to withdraw funds and a lot ended up putting the money into bitcoin, where governments could not touch it.
The Forbes E-book On Bitcoin
Secret Money: Living on Bitcoin in the Real World, by Forbes staff writer Kashmir Hill, can be bought in Bitcoin or legal tender.
“Bitcoins were growing slowly until Cyprus. Cyprus was the catalyst for the big increase in the price,” he said. “The price started trading at about $40 and then doubled within a couple of days,” he said.
Because of Cyprus, prices pushed towards $200, but dropped to about $60 after the banking crisis abated and surprise internet attacks on a few of the exchanges. Those attacks caused these exchanges to go offline for short periods.
After a summer lull of relatively stability, the crypto-currency started making headlines again as the latest investment vehicle. Babin-Tremblay said the coin’s latest parabolic rise started in early October as a result of Chinese demand. The demand in November was so high that some prices quoted on Chinese exchanges were almost double compared to exchanges outside the country, he said.
“The rest of the world has been buying bitcoins to try and sell them to Chinese consumers because there is so much demand there,” he said.
He added that the country’s growing middle class are attracted to the crypto-currency because of the lack of other alternatives.
“Essentially you have the perfect storm in China,” he said. “It’s very difficult for Chinese people to invest overseas. They have a real estate bubble, they have a stock market bubble and they have one of the highest saving rates in the world.”
China Throws Cold Water On Bitcoin Investments
Chinese demand for bitcoins cooled significantly since hitting its November high, after the Chinese government announced that it was cracking down on the currency. On Dec. 5 China’s central bank barred banks from handling bitcoin transactions.
