Bitcoin’s 2013 rise to fame has been too quick and not necessarily for the right reasons. While the fact the virtual currency exists shows demand for an alternative to global currencies (such as USD, EUR, GBP and JPY), especially after mass central bank intervention and attempted weakening to reverse the financial crisis and kick-start growth, it is only thanks to an April price jump ($100 to $200 and back) and increased media coverage that it has been thrust into the limelight, with further coverage and increased speculation sending the price from $200 in October to a record $1250 end-November, with impressive volatility and plenty of bubble-like qualities along the way.
For the moment though, Bitcoin remains a speculative venture for a small minority of users/traders rather than a true currency alternative (only $6 billion worth in existence). Its price volatility (back to $500 today on regulatory fears) is a message in itself about its place within the financial world and as an investment, tradable asset and store of value. Lacking any intrinsic value it differs hugely from ‘real currencies’ with its lack of everyday usage and usability as well as its price moves being media, speculation and regulator-driven rather than by traditional characteristics (macro data, interest rates, relative strength etc.).
While Bitcoin has failed to receive official acknowledgement as an alternative to legal tender the world over, its volatility and potential for abuse (money laundering, fraud, lack of central exchange, lack of control, no backing etc) has attracted the attention of governments and regulators alike and steps already been taken to curb/ban use/trading in countries such as China and Denmark to protect consumers and traders alike. Note ironically, however, that in several geographies it hasn’t failed to escape the shackles of Capital Gains Tax! As they say – death and taxes.
While today’s move by China to bar financial institutions and payment companies from using Bitcoin has dealt the currency a big blow, adding to existing volatility and guaranteeing another round of media coverage, it is likely to remain of interest to speculators and the hardcore users/believers who will take this increased regulatory response as recognition of the virtual currency’s potential as a threat to the traditional alternatives. In terms of the dream of replacing them anytime soon, however, that’s just taking it a Bitcoin too far in my view.