What’s Happened to Bitcoin Since the Surge Earlier This Year?

The rise of cryptocurrency has revolutionised the way we view both banking and investment. It remains largely unregulated and beyond the scope of mainstream investment portfolios. And yet its influence has been felt by everyone. At gpfm, we pride ourselves on keeping our finger firmly on the financial pulse, tracking the fluctuating fortunes of all these potential investment streams.

Let’s take a look at the cryptocurrency bitcoin. What it is, why it has been so volatile of late and what it could mean for you. It may be that you’re considering investing in bitcoin. We’ll provide you with some preliminary information here as you grapple with that decision.

What exactly is bitcoin?

In its simplest form, bitcoin is a digital currency. This means that there are no notes or coins in existence. What’s more, it’s completely decentralised – in other words there’s no government or central bank that administers it. Bitcoin connects buyers and sellers through encryption keys, so ownership is effectively anonymous. And rather than being issued from the top down like traditional currency, bitcoin is ‘mined’ through powerful computing.

Who can invest in it?

For those who embrace the inevitable risk associated with owning bitcoin, there is a growing marketplace of digital currency exchanges like Coinbase, Coinmama, CEX, and Kraken, where you can buy, sell and store bitcoins. Getting started is relatively straightforward and doesn’t require any significant expertise. After setting up your account, you can make a deposit from a traditional currency bank account into a virtual wallet – then you’re all set.

Why did it experience a recent boom?

In late 2017, bitcoin found itself at the centre of a real investment bubble, fuelled by forces of human herd behaviour, a sense of fear of missing out, and perhaps a lack of understanding on the part of many of the investors who were jumping on the bandwagon. Proclamations that bitcoin was the ‘currency of the future’ became a soundbite that novice investors latched onto in their droves. A rocketing price doesn’t automatically make something a good investment, but many investors fell into the trap of assuming otherwise.

And why did it then drop in value?

Early 2018 saw more than half of bitcoin’s value wiped out. This can, in large part, be attributed to worries about regulatory clampdowns by the world’s banks and governments. As moves by banks to ban buying bitcoin on credit cards, for example, became increasingly widespread, investors started getting spooked, pushing prices lower. General mounting confusion around governments’ attitudes towards digital currencies had a similar effect, as various leading finance ministers announced plans to eliminate the use of digital currencies for payment purposes.

Is bitcoin likely to go up again?

The volatility that has come to define the bitcoin market shows no sign of going away. With its market value fluctuating so widely depending on market news, there’s no reason why we shouldn’t expect to see similar surges in the future.

So, is bitcoin still a viable investment?

In the broadest terms, there are two motivations for investing in cryptocurrencies like bitcoin. The first is a belief that it represents the future of money in an increasingly decentralised financial system. The second is simply a desire to make money in the short-term from a hugely volatile market. Most investors will identify with one or the other of these two motivations.

Many commentators are now beginning to really call into question whether bitcoin will ever live up to the early hype of being the future of money – a currency that can actually be used to make day-to-day purchases. For that to happen, it would need to be widely accepted as legal tender, be frictionless to trade, and have a relatively stable value. Bitcoin is making very little progress on any of these fronts, perhaps casting doubt as to whether investing in the long-game is worthwhile.

But for those looking to trade on the short game, where there are major market fluctuations, there are always opportunities to potentially make money.

Intrigued? Why not reach out to us at gpfm to discuss how investing in Bitcoin and other cryptocurrencies differs from more traditional investments.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.