For those who haven’t heard of it as yet, Bitcoin is described as a digital currency or electronic pear-to-pear cash system, which was supposingly developed by Satoshi Nakamoto, back in 2008. They can be transferred through a computer or a smart phone without financial intermediaries.
Bitcoin are created through a process called « mining ». Miners use special software to solve math problems generated by the bitcoin software and are issued a certain number of bitcoins in exchange.
The number of bitcoin is finished in the sense that only 21 millions bitcoin will be created once they all have been mined.
Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 BTC within the year 2017 and halved continuously every 4 years after until a hard-limit of 21 million bitcoins is reached within the year 2140
To date, about 11 millions bitcoins have been mined and are officially in circulation, each of them are unique and cannot be counterfeit.
Bitcoin hadn’t really stirred much attention until recently when it’s value went sky high or more than twenty five times its yearly low before more than halving in value which rightly started to spur real interrogations across the world while at the same time we could see flourishing all sort of articles talking about incredible stuff from anything to flats up for sale in New York or other products being exchanged via internet platforms for bitcoins etc.…
Yet should all this make the bitcoin a real trustable currency?
Some are considering it as a currency because you can pay for goods with it but what do you really buy when you buy one bitcoin?
To be clear, and this is very easy to answer, not much and certainly not the same as if you were to buy USD, Euro or any other currencies, not even Zimbabwean $.
Simply because the value of a classic currency is baked by the economy of the concerned country, it’s ability to attract investments or purely on the back of its assets, weather it is gold or any other type of assets.
In the case of the bitcoin, the value only resides at a conceptual level on the back of the following points:
-It permits swift, secured and totally anonymous transactions without even going through regulated financial institution.
-It doesn’t need to be kept in a bank
-It is potentially impossible for the tax office to even consider controlling your bitcoin and taxing any income in bitcoin as long as you keep them in bitcoin.
-It can’t be devaluated since it will technically be limited to 21 millions (yet this doesn’t prevent huge volatility).
-It can’t be stolen from its owner weather it is by hackers, individuals or states, at least until now.
If we look at the above points the only advantage of real interest that other classic currencies may not offer is secured and untraceable transactions without going through any regulated institutions.
This is precisely what criminals (drug Traficant, arm dealers, terrorist groups, you name them…) are looking for.
The new and more recent phenomenon, it appears, is that some not necessarily criminals investors might have started using it, pouring real and clean money into the bitcoin market and therefore offering a new platform for criminals to launder money.
How? Well this is very easy. Precisely because on the scale of the criminal market, the bitcoin market isn’t so big. It is therefore very easy to manipulate and control it.
Currently the whole value of the bitcoin market is about $US1 billion while only a few months ago it was of about $US100 millions.
This market is extremely small, illiquid and whoever holds a large amount can easily pump and dump while keeping the price high for a while or at a level they estimate suits best their interests.
The higher the price, the better it is to convert bitcoin into real $US.
As a criminal, you may lose some playing at this game but that won’t be an issue just because getting laundered money is more and more expensive.
Criminals are smart these days and there are getting smarter and smarter. Many are certainly working hard out there trying to familiarise honest people, economically non educated investors, gambler who may think they can play and win some with the bitcoin, people that may not understand what really is the bitcoin, people that might be confused by the fact that many analyst working for regulated financial firms are even talking about it, that some hedge funds might even be considering investing into it etc.
Just put up for sale a penthouse in New York, a Ferrari or even a jet against bitcoin and you’re guaranteed a lot of free advertisement.
The clear winner will be the buyer who will have converted fake money into real money.
Also a whole industry of services is developing itself on the back of bitcoin, weather it is for trading bitcoin, manufacturing physical bitcoin etc.…
Don’t be wrong, no criminals will be losing out; mostly honest investors will be paying the heavy price.
So what should be the real value of a bitcoin since it isn’t a real currency, since it is one of the most efficient ways to probably launder money and since its lack of liquidity makes it a very easy tool for manipulating its value?
Should it be about $110 where it trades these days, $260 where it was a few weeks ago or $4 where it was only a few months ago?
Couldn’t the below formula be a good way to describe the value of the bitcoin?
Value of bitcoin = zero + small value for service of swift, secured and totally anonymous transaction outside financial market
The question one should ask isn’t if the bitcoin is going to reach a near zero value ever again but when will it drop back to zero + small value?
Few factors such as those identified below can get the price nearer to zero at any point in time:
-Massive sale by some large initial holders (profit taking)
-Creation of another, or several others, similar markets bringing more competition (no doubt the next one will be better)
-Intervention of a major state pushing for the end of the bitcoin market across the glob
-General panic from the consumer refusing to sell anything against bitcoin.
-A major breach into the bitcoin system following a massive hacking attack (trading platforms are already subject to heavy hacking issues).
When will one of these factors materialise? We can’t tell but one could predict sooner than later.
Bitcoin chart since trading started.