The digital currency Bitcoin recorded a new high by crossing $6,000 on some exchanges like Bitfinex and Bitstamp last evening (in India). Both Bloomberg and Business Insider reported the currency’s sudden surge on October 20, though the cause of the rise in value is currently unknown.
Let’s remind you that it was only last week that the price of bitcoin rose from $5,300 to $5,800. Bitcoin has risen by more than 500 percent in value this year alone, indicating high investor demand.
Before we draw conclusions about this cryptocurrency nearing a sudden gain or a shocking fall, let’s briefly understand what Bitcoin actually is!
Bitcoin is simply a currency, similar to the dollar, euro or rupee. However, unlike these currencies, Bitcoin isn’t issued by the government of that particular country, hence, it’s free of regulations! Therefore, the cryptocurrency is being traded on various stock exchanges without any government control – trade occurs between seller and buyers without any check!
Bitcoin is a virtual method of storing and transferring value, created in 2009 by Satoshi Nakamoto in Japan. It is built on a software called blockchain, which cuts out the need for a middleman. That means no banks clear your transactions. (Blockchain is a highly secure public ledger of all cryptocurrency transactions.)
For trading bitcoin, the buyers and sellers go straight at each other via stock exchanges. Therefore, if a bitcoin’s price suffers a free fall, there’d be no regulator to protect it!
As a result, there is no dearth of critics who see the rapid ascent of Bitcoin as a bubble (READ: dot-com bubble and Florida real estate). J.P. Morgan Chase & Co.CEO Jamie Dimon recently said, “If you’re stupid enough to buy it, you’ll pay the price someday.”
Looking at last year’s trends (massive growth) of Bitcoin, by taking into account the history of such bubbles, I conclude that such growth charts have always crashed! Not sure when this bubble would burst, so my recommendation would be to invest in this currency in small quantities!