All I Want for Christmas Is Some Bitcoin, or Maybe Not . . .
Bitcoin has been around since 2009, but this year the digital currency went from a niche payment system for the technically inclined to a wildly popular, though volatile, investment strategy for millions of new users.
As the value of the cryptocurrency skyrocketed from around $964 per bitcoin in early January to a peak of nearly $20,000 Sunday, Dec. 17, it also became increasingly popular for many to compare it to other famous speculative bubbles, such as Holland's 17th century tulip mania, that eventually ended in market crashes.
In the waning days of 2017, those jaded forecasters appear to have been proven correct: Since Dec. 17, bitcoin's market price has plummeted to under $13,000 as of this morning -- a drop of more than 26 percent in just the past 24 hours, and a one-week decline of more than one-third.
What does all this mean for bitcoin's future? Is it, as JPMorgan Chase CEO Jamie Dimon called it in September, a "fraud"? Or is it "money 2.0," as described by venture capitalist Chamath Palihapitiya, a former executive at AOL and Facebook? Where does bitcoin go from here?
A Long Way from the 'Genesis Block'
Before considering where it might be headed, let's look at how bitcoin began and how it's evolved.
The concept of a digital currency that can be created through computing power and exchanged online in a verifiable way was conceived in a 2008 research paper written by someone using the name "Satoshi Nakamoto" (the pseudonymous bitcoin creator has never been positively identified). The currency itself came into being in January 2009, when Nakamoto "mined" a so-called "genesis block" of 50 bitcoins.
Rather than being issued and controlled by a central bank, bitcoin is decentralized and verified through peer-to-peer transactions on the network. Each new bitcoin, bitcoin payment, and bitcoin exchange is recorded via a digital distributed ledger, or blockchain, that's publicly viewable. Because every transaction includes details about the transactions that preceded it, the ledger is difficult to fraudulently alter without others being able to notice such changes.
Over time, bitcoins become more difficult to mine. There's also a limit -- 21 million -- to how many bitcoins can exist, a point expected to arrive in 2140.
Since bitcoin first became active, numerous other cryptocurrencies with names like Ethereum, Ripple, and Litecoin have also emerged on the market. In addition, the concept of a distributed ledger is increasingly being explored as a way to record and verify transactions in other areas such as banking, insurance, and supply chain management.
Other recent mainstream appearances of bitcoin-related innovation include new bitcoin futures trading by the Chicago Board Options Exchange (CBOE), launched Dec. 10, and the CME Group, launched Dec. 18, as well as initial coin offerings (ICOs) to raise investor funds for new cryptocurrency ventures.
Bitcoin has also been the currency of choice for malicious actors seeking payment from their ransomware victims, which has caused some companies to stockpile bitcoin in case of a cyberattack.
Cryptocurrency Backers Take the Long View
As of March, the global cryptocurrency market was valued at nearly $25 billion, according to a study by the University of Cambridge's Centre for Alternative Finance.
So what's next for bitcoin in the wake of its value's dramatic rise and fall over the past year? People should keep a longer view in mind when looking at bitcoin's current crash and burn, CoinDesk, an online publication that covers the cryptocurrency industry, said today.
"For example, the market has almost returned to its value prior to announcements by major U.S. exchanges that they would offer exposure to bitcoin via futures products," CoinDesk noted. The publication added that while almost all major cryptocurrencies are currently taking a market hit, CBOE and CME futures trading continues to see demand.
Charles Hayter, founder and CEO of CryptoCompare, told the BBC today he believes some bitcoin traders are cashing in on their investments before the end of the year. "A manic upward swing led by the herd will be followed by a downturn as the emotional sentiment changes," Hayter said.
BitBull founder and CEO Joe DiPasquale told CNBC this morning that he was taking a long-term view of the current bitcoin market chaos. "Right now people are biding their time until the bottom is felt," he said. "It is a buying opportunity, perhaps in the next day, but you have to see where support is reached to make that decision."
Image credit: iStock/Artist's concept.