The Most Valuable Hype of 2017
When you think of the year 2017, events like the first full year of America’s new president Donald Trump, the conflicts in Spain and the new cabinet in the Netherlands may jump to mind or you might think of the year in which the world’s economy was making great steps towards recovering from the recent economic crisis. However, if you ask us what we think is the most outstanding phenomenon of the last year, it would be the sudden rise of the bitcoin. At the start of the year, some people would tell you that they had heard of it in the news sometimes and they probably could tell you that it is a cryptocurrency that has become increasingly more popular over the last years. However, at the end of 2017, almost every adult knew about it. If someone had bought one bitcoin in January of 2017, they would have paid around $1000. This sounds very expensive, but this same coin could have been sold during the climax of December for almost $19.000, providing an $18.000 profit! Now, however, the hype is decreasing. Since the value suddenly started declining around last Christmas, we are not so fascinated by the coin anymore. Is that a logical reaction? What about the future, can we do any predictions for the upcoming year, or is there a lot of uncertainty around the bitcoin and other cryptocurrencies?
Most expensive phenomenon of the year
Let us go back to the basics, in case this whole concept of the bitcoin still does not sound familiar: the bitcoin is one of many cryptocurrencies, which is basically buyable, digital money. As with all currencies, the cryptocurrencies have a certain value based on how much demand there is for them. So, what people would do is invest in this currency while it was still worth practically nothing and hoping the demand and therefore the value would increase. Precisely that is what happened very quickly in 2017. Since the bitcoin is not a “real-world” currency, the coin cannot be managed by a central bank, like the US Federal Reserve, or the ECB. No monetary policy can be used to restrain or back up these currencies. Instead, the bitcoin doesn’t have a central bank, so there is no one who can influence the value of cryptocurrencies, besides the people that buy them. As said before, the value is determined by the demand for the coin. So, when it became for outsiders also clearer that the value increased amazingly fast and that you could make a lot of money with it, the demand also enlarged. At the end of November, a lot of people warned that you can speak of a “bubble” and that they were expecting the value to collapse in the near future. That happened at the end of December and now the value of the coin fluctuates a lot.
So, what happened then?
If we take a closer look at the course of bitcoin over the last year we can see a rather interesting line. This graph represents the value of the coin over the last 9 months of the year. As can be seen, in the first months the value was barely over a thousand. However, at its peak, the value was over 19.000 USD. This is an increase of almost 1800%! We can also see, though, that the current value of the currency is plummeting, bringing it back to a point where it was almost two months ago. What could have caused such a sudden drop? As stated before, the value of the bitcoin relies on just one thing: demand.
This is an increase of almost 1800%!
The only reason the bitcoin was doing so well is that plenty of people wanted to own it. Therefore, to explain the sudden drop we can only assume that people lost interest in owning a, or part of a, bitcoin. To find out what may have caused this, we shall look back at what has been news and rumours around the bitcoin. Since the demand is mostly dictated by the trust people have in the bitcoin, even fake news may have a great impact on the course of the currency if it gets enough attention.
Several things have come up right before the decline of the bitcoin that could have been of influence on the sudden drop. Two of which jump out. Firstly, China and several other Asian countries announced they will soon make the laws regarding cryptocurrencies much stricter. Secondly, and this may even have been more impactful, is the fact that the still unknown creator of bitcoin, who goes by an alias of Satoshi Nakamoto, has stated that he has lost faith in his own coin and that he has sold his bitcoins. Many people were prompted by this to quickly sell theirs as well. Then it became a quickly dropping spiral in which more and more bitcoins were sold because more and more people saw the value dropping, which brings us to the ever-plummeting course that we are still on today.
Experts are unsure
Besides the bitcoin there are other cryptocurrencies; Ripple, Litecoin and Ethereum are other well-known coins. However, when you ask experts for their opinion about the market around those currencies, it is far from positive. Most of them agree that the cryptocurrencies are even more fluctuating and far more unpredictable than stocks and bonds. For stocks and bonds, on the one hand, you can at least make a prediction on how their course will be because their value is based on how well a firm is doing.
Consequently, in the long run, it can behave in very extreme and unpredictable ways
The cryptocurrencies, on the other hand, fluctuate from day to day and as we have seen before, can even be influenced by simple rumours. Consequently, in the long run, it can behave in very extreme and unpredictable ways. Therefore, when you ask experts which cryptocurrencies, in particular, have the most chance to succeed in the long run, they will give you a vague answer. So, we have to conclude that even the most brilliant people in this sector cannot say anything about the future of the digital-currencies.
What about the future?
To conclude, the bitcoin has seen a flourishing year where it took the floor of the world’s economy and made the news several times. It ended however with the bursting of the ‘bubble’ during December of 2017. Many people made and lost money over it during this time and even more money may be lost over the next couple of months. Other cryptocurrencies suffered the same fate, riding on the success and failure of the bitcoin. What the future holds for this new kind of currency, however, is still uncertain. This rather new phenomenon has proven to be everything but predictable, so we will just have to wait and see what the course will bring. Will the trust that was gained over the last year be enough to remain viable for the market for cryptocurrencies, or has everyone lost faith after the bursting of the bubble during Christmas?
Coen Wolters & Max Kanne 29-01-2018
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