Bitcoin’s Biggest Problem is Also it’s Greatest Strength
Bitcoin, the Bastian of the free market economy and demonstration of supply and demand in its purest sense has seen something of a renaissance, followed by a fall, if not to earth, then certainly partially. The currency has been vilified by the news media, edified by analysts and after every slump and spike there is the inevitable, “I told you so,” from both sides.
Bitcoin will continue to fluctuate, but it’s the nature of the fluctuations that should have investors concerned. You see, bitcoin isn’t underpinned by any tangible economy or product — it simply ebbs and flows on the winds of rumour, innuendo and market intelligence, and nobody can tell which is more important at the moment.
The latest evidence of this was following recent announcements from the South Korean government in relation to potentially banning cryptocurrencies in order to limit North Korea’s ability to make money. North Korea of course, is rumoured to have profited from legal and illegal actions as the value of bitcoin rose. The response from the market was swift and the value of the cryptocurrency plummeted, briefly corrected and then plummeted some more. The crucial point is that no formal action had been taken by South Korea, and while concerns of this type are usually met with a firm response from the market, the sustained nature of the slump in relation to the size of the market that bitcoin actually inhabits was disproportionate to say the least.
In order to remove these ebbs and flows, bitcoin will need to be underpinned by something of tangible value, which removes the strength of the currency in the first place. As the market continues to work out exactly what bitcoin is, how it will work and, interestingly, as other currencies enter the market and slowly chip away at bitcoin’s dominance, the investment component will remain the wild west. The question is, once stability is achieved will bitcoin still be viable?
Bitcoin’s Biggest Problem is Also it’s Greatest Strength was originally published in Australian Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.
