Tuesday 05, December 2017 by Jessica Combes

Buyer beware as bitcoin investors see a $2,000 fall in 24 hours


Bitcoin Investors had no time to count their profits as the cryptocurrency–worth a new record high of $11,395 on Wednesday 29 November 2017–lost $2,000 in just 24 hours plunging to $9,000 on Thursday 30 November 2017, before a slight improvement by the days end, according to GlobalData.

The 30 November bitcoin price placed the cryptocurrency’s market cap at a staggering $189 trillion, based on the total ever supply of bitcoins, not what have already been “mined” and available to buy. As of 3 December, 16,718,138 have been mined and are in circulation, giving a market cap of $150.5 trillion (at $9,000 per bitcoin).

The non-regulated cryptocurrency which has few traders, is a very volatile investment in the short term for whom the phrase ‘buyer beware’ could well have been invented, according to GlobalData. Indeed the Bank of England recently warned that Bitcoin investors "should do their homework". However those that bought Bitcoin in 2012 at $10 USD and held will testify to its long term return potential.

Bitcoin is a type of digital currency which was originally created for people to buy and sell goods online as an alternative to traditional payment methods, like cards, and dealing with banks. Transactions are made independently of any central banking system and recorded in a public distributed ledger known as a blockchain. Although originally set up as an alternative currency it is now mostly traded as an investment.

Many Bitcoin investors are speculative by nature with little or no trading experience. Typically they are drawn into the market by the ease of trading–which simply requires an internet connection–an interest in new kinds of investment and a belief that they can make a quick profit.

“With only 21 million bitcoins able to be ‘mined’ you have a classic situation here where limited supply generates market excitement, high demand and prices go up. But like any market, Bitcoin trades are based on investor confidence and I think what we’ve seen here is the armchair investor becoming nervous about something they have little knowledge of and bailing out before the bubble bursts,” said Kit Carson, Head of Banking and Fintech at GlobalData.

Bitcoin has the first mover advantage, however it’s not clear what its value is linked to and there are plenty of other cryptocurrencies out there for investors to choose including NEO, Litecoin, Monero, Dash and Zcash.

‘‘With something like the Hong Kong Dollar (HKD) an investor knows what they are buying and can be confident that it is controlled, in this case by the Hong Kong Monetary Authority (HKMA) which sets interest rates. Value is based on a clearly understood and transparent entity, the performance of the Hong Kong economy. However, nobody knows what the levers are for Bitcoin or whether it is a currency to be traded or an asset to be held onto,” said Carson.

Bitcoin pricing is very arbitrary with few mechanisms for setting price and all operated by independent and unregulated exchanges with many commentators pointing to the real prospect of prices being manipulated through collusion between exchanges and fraudulent practices.

‘‘With the US Securities and Exchange Commission (SEC) choosing not to approve a Bitcoin exchange-traded fund (ETF) application in 2017 all eyes are now on other regulators to see how they will manage cryptocurrency’s going forward,” added Carson.


Features & Analyses

SME Finance A sincere form of flattery?

  When Stevi Lowmass of The Camel Soap Factory discovered her product was being copied and sold, she took a number of steps to… read more