Is Bitcoin Back?
100%.
That’s how much the price of bitcoin increased since December 31. At last check, the cryptocurrency was trading at $7,502, after jumping 14% on Friday and 7% on Monday. For non-mathematicians, that’s more than 20% in just a couple of days. Not bad.
So, are cryptos back?
If you’re looking for an investment with zero assets, no home turf, no management, and a side of adrenaline rush, then this is your baby. But if you want stability, as most people do with their currency, then take a pass.
And that’s the problem with bitcoin. It’s not stable and not used for many transactions. Other than that, it’s a perfectly acceptable currency!
As for why it’s going up, there are a couple of reasons, one internal and one external…
On the inside…
Bitcoin is headed for another “halvening,” which is the time when bitcoin miners earn half as much for their efforts because the algorithm controlling the cryptocurrency will reduce the amount of bitcoin created by 50%.
Without getting too far into the weeds, miners verify all transactions on the blockchain, and then add a small block of verified transactions to the blockchain. The entire process is computer intensive and uses a lot of power, so miners are paid in bitcoin. The controlling algorithm determines the rate of pay, and it drops by 50% about every four years.
By consistently lowering the number of coins created, the system is trying to maintain or even increase the value of bitcoin. If demand and use are growing faster than supply, then the price should go up, making everything purchased with bitcoin comparatively cheaper.
The next halvening will occur in May 2020, which seems like a long way off, but it’s possible that bitcoin investors are starting to build positions in front of that date.
On the outside…
We’ve got trouble in Venezuela, Iran, and now Argentina, all of which can drive bitcoin higher.
It’s difficult getting money out of failing economies. Generally, the ruling governments don’t like it, and they put strict limits on the amount of home currency that can be exchanged for foreign currency. If they didn’t, then everyone would try to get out of the home currency, driving it to zero.
By forcing locals to hold on to their national coin, the government is making them suffer through inflation and a falling standard of living. It happened in Venezuela over the last three years, where inflation now runs more than one million percent, and it’s starting to speed up in Iran and Argentina, with inflation of 40% and 60% respectively.
Cryptocurrencies give people a way to exchange out of their home currency and into something that can easily be accessed around the world. Granted, you’ve got to find a way to get your home currency to a bitcoin exchange, which can be tough.
But neither of these things – the halvening or the hiding of assets – makes bitcoin a currency. For that to happen, people need to use it buy stuff.
It has to become boring…
I remember the first time I saw my dad use a credit card to pay for gas at the pump. It was 1984 in Tampa, Florida. I thought it was magic. Never have to go inside? No waiting in line? Awesome!
Now, it’s boring. It’s normal. We frown on people who use cash at grocery stores, and noticeably tap our feet if someone tries – even tries! – to write a check.
Bitcoin isn’t boring as a currency; it’s time consuming and not easy. That might be why people are using it less instead of more.
Reuters reported on a Chainalysis study last year showing monthly bitcoin payments had dropped more than 80% from October 2017 through September 2018, falling from $426 million in December to $80 million in September. The survey covered 17 major bitcoin payment processors. Over the first half of 2018, Coinpayments.net reported a 50% drop in transactions across many cryptocurrencies.
Before we can call bitcoin a currency, it must be widely used in mundane ways, like at the grocery store and gas station. And a little stability would help.
Until then, it’s just a way for people to avoid government road blocks on capital (which isn’t necessarily a bad thing), and to gamble without a bookie.
Note: This article originally appeared at Economy & Markets on May 15, 2019. The author of the article is Rodney Johnson.
Category: Currency Trading
