Complex Made Simple

All you need to know about Bitcoin’s fantastic growth

Over the past couple of years, the cryptocurrency bitcoin has gained increasing popularity among consumers, governments and financial traders. It’s been a year of remarkable growth for this largely unregulated market, with dozens of new currencies appearing every month in “initial coin offerings” or ICOs.

According to Reuters, the total value – or market cap – of all cryptocurrencies in existence was approximately $17.5 billion at the start of 2017, with bitcoin making up almost 90 percent. “It is now roughly $120 billion – around the same value as Goldman and RBS together – and bitcoin makes up only 46 percent,” it said.

But where is bitcoin heading in the future and what have been the reasons behind this rally?

To answer this, AMEinfo interviewed Hussein Sayed, Chief Market Strategist at FXTM. Here’s what he had to say

Where is the value of bitcoin heading on a global level?

The jury is still out on the future of cryptocurrencies in general. Due to the fact that they are largely unregulated, it is difficult to predict the factors that will secure their continued success, or contribute to their demise. Although bitcoin has a finite supply, it has no intrinsic value. This means it’s impossible to relate the value of bitcoin to any other asset, or an economic metric.

The technology and concept is in its infancy and, no doubt, there will continue to be events such as hacking and government intervention that will affect its price.

What have been the reasons for the rally in bitcoin, both globally and in the Middle East?

There are not many investments that rally by 124 per cent in one year, but bitcoin has done exactly that. As with many investments, sentiment can play a large role in an uptick. Since bitcoin came into the mainstream, many investors, including hedge funds, wanted to be a part of this experiment, which leads to more inflows to bitcoin.

There has been some debate among developers about how to upgrade bitcoin’s technology; they have appeared to reach an agreement and the merging of upgrade ideas now adopted by developers has moved the market.

The fact that governments are now starting to accept its role as an alternative currency is a huge step forward. While the price can be volatile, the growing level of acceptance will ultimately affect the price.

Is bitcoin becoming a safe haven?

I’m not sure whether bitcoin has become a safe haven. However, it has certainly become an alternative investment. The financial crisis in 2008 and the unconventional monetary policies across the globe have supported the growth of cryptocurrencies.

Could bitcoin replace traditional methods of payments in the future?

It’s too early to say that bitcoin will replace traditional payments in the future, but there’s a good chance that blockchain will replace traditional payment models.

Why do some investors believe that this ‘crypto-bubble’ might burst soon?

Any asset that moves with such velocity has the risk of being perceived as a bubble.  However, asset bubbles are happening everywhere, whether its real estate, fixed income, or stocks.

As for bitcoin, it’s difficult to know whether a bubble is being created, as there are no specific metrics used to evaluate what its intrinsic value should be. But it’s certainly going to be very volatile in the next couple of years.