In case you’ve been living under a rock, you’re probably aware that bitcoin has been setting one record high after another in the past few days and might keep adding to its triple-digit percentage gains so far this year. Here’s what you need to know if you’re thinking about joining the cryptocurrency bandwagon.
Cryptocurrency, virtual currency, digital currency… Bitcoin by any other name would be as sweet. These terms refer to a non-fiat and non-physical currency generated through encryption techniques used to verify and record the transfer of value, operating outside of a central bank or monetary authority.
In particular, bitcoin was developed way back in 2008 through the concept of “mining” using a computer. This involves solving complex algorithms in searching for a 64-digit number combination that rewards the miner with bitcoin.
As you’ve probably guessed, although there are bajillions of possible combinations, most of these have already been mined by now so the supply of bitcoin is essentially limited. Just like gold, except you can’t wear it around your neck.
So it’s just rising demand fueling the rallies?
It sure looks like it! Back when I wrote an article on the ins and outs of bitcoin for forex traders (way back in 2013!), the digital currency was trading at just roughly $250 per unit. As of this writing, the price of bitcoin has just reached $2500!
The climb hasn’t been all smooth, though, as bitcoin has struggled to shake off its bad rep for being used to facilitate criminal activity – from ransomware attacks to terrorist operations – so you can imagine that there were pretty wild swings in price action.
Also, the fact that bitcoin is decentralized or not backed by any central bank reserves has also given rise to regulatory concerns. Not surprisingly, a handful of governments have been skeptical of digital currencies, even proposing nationwide bans on bitcoin services and trading.
If you want a blow-by-blow account of how bitcoin weathered the punches over the years, check out these updates. These are more exciting (and potentially profitable) than keeping up with the Kardashians, I tell ya!
- Season I: BTC China’s $5M investment, the rise and fall of Mt. Gox
- Season II: First NY-based bitcoin exchange, bitcoin startups go mainstream
- Season III: ISO-certified as XBT, more establishments accept bitcoin payments
- Season IV: Major roadblocks render bitcoin as “Worst investment of 2014”
- Season V: Price surge to $500 on Russian Ponzi scheme
- Season VI: Revived talks of bitcoin regulation, Greek capital controls
- Season VII: Chinese gov’t bitcoin crackdown and rejected COIN ETF
Phew! Quite a lot to catch up on, eh?
What’s boosting bitcoin these days?
Earlier this month, I’ve rounded up five reasons for the recent bitcoin rallies and it looks like these market factors are still very much in play. If you look at the chart I’ve posted, you’d notice that BTC/USD was barely trading at $1800 then!
Fast forward to a couple of weeks later, more progress on the scaling debate fueled another leg higher for bitcoin price after the Digital Currency Group announced an agreement supported by 83% of miners. You see, this has been a long-standing issue among bitcoin stakeholders because the rising number of transactions on the blockchain has led to fears of a “hard fork” or two separate versions of the cryptocurrency.
Over the weekend, proponents published a document that detailed an upgrade which would increase bitcoin’s transaction capacity and allow more applications to be built based on the digital currency.
To top it off, more indications of a slowdown in China also led to an influx of funds to this alternative asset. Persistent geopolitical risks, this time stemming from the terror threats in the United Kingdom leading up to the snap elections, have also highlighted the “safe-haven” appeal of bitcoin. How high do you think it could go, $3000?
Let me remind you, however, that bitcoin is a very risky and volatile asset so you should be extra careful if you’re planning on investing in this market. As with forex trading, make sure you do your research before forking over your moolah!