When we left 2017 behind, Bitcoin was riding a wave of interest, with the cryptocurrency on track to enter the new year as a lucrative investment. Two months into 2018 and things have changed. Is Bitcoin unravelling before our very eyes?
New Year’s Eve 2017: the dreams of Bitcoin’s many loyal followers came true as the cryptocurrency reached a record $14,129 worth. Surely, after ending the year on such a high, it could only go up from here, fans said as Bitcoin creeped into the mainstream limelight.
In 2018, that sentiment seems to be just a little off the mark now, as Bitcoin stabilizes around the $9000 mark (at the time of writing, a single bitcoin is worth $8770). Not unimpressive, I’m sure you’ll agree, but it’s not the value which could bring the dream crashing down: it’s the opposition cryptocurrency is finding in financial establishments.
A Brief Introduction to Bitcoin
In order to understand why banks and financial institutions sees Bitcoin as such a risk, it’s wise to first understand what it is.
Perhaps the best known of the so-called ‘cryptocurrencies’, Bitcoin has risen in popularity ever since its initial appearance in January 2009, when enigmatic creator Satoshi Nakamoto released the first bitcoin mining client and the first bitcoins were issued.
Unlike traditional currencies, Bitcoin and its peers are decentralized tradeable assets which can be used to secure goods and services. This freedom from banks puts the power of Bitcoin’s worth into the hands of its users. You’ll also notice another difference between Bitcoin and traditional currencies: there’s no physical representation to lose down the back of the sofa.
But whereas its first usage stems from the shadowy dealings of the Dark Web’s users and niche interest groups, there’s an increasing number of retailers worldwide who accept cryptocurrency as payment. Some, such as Microsoft and Virgin Galactic are perhaps unsurprising, but then the likes of CEX (a video game, DVD and technology store) and Subway (a sandwich establishment) are proving that it’s not just for Silicon Valley giants to offer.
How Did Bitcoin Become So Powerful?
In March 2017, Bitcoin hit headlines for surpassing the value of gold – at the time, one bitcoin was worth $1293, whilst an ounce of gold was $1230. By this point, Bitcoin had already weathered plenty of headlines declaring its death, but how did the price continue to rise to reach December’s record amount?
For a start, unstable real-world currencies and huge political upheavals have pointed many ordinary people in the direction of a decentralised currency which can offer stability in a time of uncertainty. Factor in the increasing demand in China, the mystery around its creator, and the fact that big venture capitalists such as the Winklevoss Twins have put their stake into Bitcoin, and the reason for its popularity becomes clear.
But it’s not popular with everybody.
Making an Enemy of the Banks
“If authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability.”
Agustín Carstens, Head of the Bank for International Settlements
This is where we reach the crux of why the financial world is rebelling against the growing trend for Bitcoin. Much criticism has been levelled at cryptocurrencies, including their ability to undermine both government and financial systems, as well as the potentially parasitic relationship they have with real-world currencies.
As a result, many vocal critics have called for a crackdown on Bitcoin – not least Agustín Carstens, quoted above. In response to what central banks perceive as a huge threat to the economy, Lloyds Bank and Virgin Money have both banned customers from using credit cards to buy bitcoins.
Meanwhile, the economist who predicted 2008’s global crash has dubbed cryptocurrency “the mother of all bubbles”, and many are claiming Bitcoin as a ‘bad investment’ to warn clients away from.
In response to potential regulation and measures taken against investing in cryptocurrencies, however, Bitcoin has found its price fluctuating, somewhat destabilising it – which in turn, could potentially lead to the very disaster which economics are attempting to prevent.
Do We Accept Change?
Whilst it’s understandable that banks are concerned about the relationship between Bitcoin and the economy, we must at some point accept the reality that we live in a time of unprecedented change.
Technology has evolved the way we live, the way we work, the way we shop; it’s a natural progression that the way we pay for goods and services should evolve too.
But for that to happen successfully, banks and governments must find a way to reconcile the economy with the excitement of a decentralised currency available to everybody.
Judging from their current position, however, that’s unlikely to happen until an opportunity to benefit themselves arises. In the meantime, Bitcoin continues to strengthen after having already come a long way. Perhaps, you might wonder, the future doesn’t need banks after all.
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