Imagine being at home. Switch on the PC and go online – banners, articles and statistics of Bitcoin; make it cozy in front of the TV-set – financial news feature reports on the coin; open a newspaper or magazine – analytics of respectful specialists on ratios, prices, services of cryptocurrencies. I suppose one might feel encircled, but what is the main reason for such excitation of media limbs? Is it a harbinger of a shining future, or a sign of soon demise? While forecasts are made, the spectators are free to prepare some snacks to follow the unfolding of events in real time modus.
The first days after the celebration of the New Year were silent, no big news or loud announcements. People were gathering all their power to start a new calendar period of their life. Some merchants added themselves to list of Bitcoin accepting venues, hardware releases were postponed, but politicians were working on simpler questions for a smooth start. Although, January succeeded to provide news that drew attention of millions of people.
Almost at the same time the Central Bank of Russian Federation officially determined Bitcoin as a doubtful matter, able to involve people in money-laundering and even terrorism, and Charlie Shrem was pushed to resign from the position of the vice chairman of the Bitcoin Foundation, as he was arrested for illegal activities within the owned exchange service BitInstant and supported black market platform Silk Road. Two sudden shocks could have heaped round the price of the coin, as similar attacks were suffered at the end of 2013. Nevertheless, many analysts believe that to win a fortune with the help of the virtual coin and its trade is still possible, and the existing hurdles are high, but to be left behind by most creative and clairvoyant competitors. The tendency clearly shows that the amount of merchants – from the bakery next door to giant online stores – is going to increase and the rate is going to be positive till the end of 2014. The optimistic forecasts still describe Bitcoin as a power capable to revolutionize the existing financial system – of a single country, region, union or even the whole world.
During the preparation of this article the price of a single Bitcoin was 824.74 dollars, but throughout the past week the average price was 830 dollars. To many experts the current price seems humble. The founder and managing director of Atlantic Financial, Bruce Fenton believes:
“The peak price of Bitcoin this year is going to be 10 000 dollars. Towards the end of the year the price of 7 500 dollars should be awaited. I think it is a realistic evaluation.”
A similar price was voiced by the president of BuzzFeed John Steinberg – around 6 000 dollars. Roger Ver, a successful Bitcoin entrepreneur and millionaire had emphasized the positive prognoses:
“2014 is going to become another gorgeous year for Bitcoin.”
After his opinion the price will hit the 5 000 dollars mark. Anyway, the member of the Bitcoin Foundation Colin Gallagher imagination draws the path of Bitcoin as following:
“Likely, after a month or one and a half we can suffer a strong drop of rate, nevertheless it is going to recover and to exceed the previous heights.”
Does Cyprus Really Help?
Looking back on the way of the Bitcoin in the financial world, everyone can see a lot of strong parties involved in the process of becoming and widening of the digital currency environment. In the beginning of 2013 the price of the coin was around 13 dollars. It was already a remarkable result after periods, when the unit cost several cents and attracted the attention only of hackers and virtual enthusiasts. The spring blossom and fresh air pushed the Bitcoin forward under the assistance of global investment organizations, among them Andreessen Horowitz and Founder Fund. The first of them provided 25 million dollars to the startup Coinbase. Other supported ideas received similar infusions. The Winklevoss twins also got engaged in the activity around Bitcoin, which brought them even more recognition than the scandal around Facebook and accusations of Mark Zuckerberg to steal the idea. In spring both were holding 1% of all existing coins). Picking up the trend, services like Foodler and OkCupid started to accept the Bitcoin as a fair payment method among fiat currencies, bank accounts and innovative money transfer systems. The overall interest contributed to the rice of the price – first it hit the 100 dollar level, but succeeded to reach 266 dollars before the next drop.
The historian of economy from the London School of Economics Garrick Hilleman seeks for reasons of the spontaneous increase of the Bitcoin price in the recent financial crisis in Cyprus. According to the results of the research, he claims:
“The growth of the currency in March-April of 2013 merged with two big events: introduction of the taxation of the deposits in Cyprus and the issue of the resolution the Financial Crimes Enforcement Network of Department of the Treasury of the USA.”
After his authoritative opinion the events in Cyprus have shown to the public that bank deposits can be withdrawn even if they are insured. That was a strong punch to the fiat currencies and the traditional banking system. On the contrary, the FinCEN announcement claimed that Bitcoin exchanger services or simply exchange platforms have to act in accordance with laws, in general, anti-money laundering rules. Anyway the mist around the virtual coin was clarified – authorities got bothered with the question and some of the solutions are able to present some level of legitimacy to the Bitcoin and similar currencies.
The end of the summer and the beginning of fall linked all events to a chain leading to the culmination of the year. Conferences and official hearings were hold, Bitcoin authorities consulted authorities on questions of Bitcoin, and more merchants joined the network of the virtual currency. The peak happened to be in November. 5- and 6-fold growth of price brought Bitcoin from 200 dollars to 1200 dollars. Due to minor losses of points by gold, Bitcoin succeeded to out power the precious metal at least for a day. This performance under the soffits impressed many, but determined the rank of the currency – the attention is not an accident, soon it will be a rule.
The contributors to the result were huge by themselves – Chinese search engine and IT-services provider Baidu announced the willingness to accept the Bitcoin for some activities. The example of a NASDAQ premium company was very attractive to smaller vendors – from snack stalls in London and bars in Russia, to Canadian handcrafters and antique shops on the ocean shore in the States. As long as the response from the society was positive smaller businesses received a new form of advertising.
An even more image polishing result had the arrest of Ross Ulbricht, the owner of Silk Road black market platform. The page run by “Dread Pirate Roberts” hosted many legal items, but the biggest part of space was provided to thousands of types of drugs, criminal services (even assassination) and other malicious deeds. The already mentioned Winklevoss twins described this success of federal police and investigators as a turning point for Bitcoin. The elimination of the criminal mastermind removed all accusations towards the coin. It does not contribute to shadow activities anymore. The Senate hearings issued the long-awaited verbal license – accepted the Bitcoin and awarded the legal status. The Chairperson of the Federal Reserve Ben Bernanke voiced the permissibility of usage of the coin.
The concept and the most important dates in the life of Bitcoin can be described in a very simple manner. A Russian user and active trader told to RBK Daily:
“I have learned about Bitcoin from my friend and decided to start with small investments. The first deposit on the account was equal to 15 000 rubles, but afterwards I have increased the funds to 45 000 rubles. In the beginning, I had no intention to earn everyday on the difference of the exchange ratio; I was counting on a long-term perspective. However, checking the ratios several times per day and completing buy/sell operations, I succeeded to increase my funds up to 105 000 rubles. In any case, it worked because of the large-scale downfall in the end of the last year, when the ratio has dropped almost by 50%.”
Soap Bubble or Pyramid?
Is the situation really that bad? Are the risks to lose the investments real and approaching? Many people argue whether Bitcoin is a long lasting soap bubble that is going to disappear of even a financial pyramid. The president of Zecurion Inc. Alexey Raevsky disagrees with both parties:
“It would be incorrect to name Bitcoin a pyramid, as the organizers of the pyramids are attracting new participant offering to receive income, notably superior to other types of investments. In case of Bitcoin no one is promising, but the price is determined on independent trading platforms.”
Still many people are sure that the virtual coin is a soap bubble. Alan Greenspan, economist and former Chairman of the Federal Reserve of the United States (1987-2006) is one of them:
“You need to have a good imagination to imagine what the real value of Bitcoin is. I cannot imagine that.”
The president of the Lionstone Investment Services Aleksandr Belyakov agrees with Mr. Greenspan:
“There is a classic example of a soap bubble in front of us that has the most characteristic features: a great story of development of the cryptocurrency by a Japanese hacker, novelty and a film of elitism, the preset final amount of units in the system, as well as the complexity to gain them, subjective value, high level of risk and an army of supporters.”
He also believes that the price of the BCT might continue to rise for an indefinite time that will definitely end. Still, many experts believe that only governmental prohibitions and official bans might stop the Bitcoin from becoming a sterling matter of exchange.
Do Not Overregulate It
Those, who succeeded to recognize the potential of Bitcoin in early 2013 and invested in it, are millionaires now – the price has risen by 60-times. One of such farseeing individuals ready to take the risks is the 34 years old owner of MemoryDealers.com and the guardian angel of Bitcoin – Roger Ver. Only in 2011 his investments in the coin reached 1 million dollars. For his early success he is sometimes named the Bitcoin Jesus. Such determination and optimism is a real revelation. Another successful young man is Charlie Shrem. Now, it is more polite to say “was” – the BitInstant founder and active Bitcoin promoter was arrested on the 27th of January. The accusations of the crimes are really mature and the 24 year old can be imprisoned for long 25-30 years. His link and support to some users of the Silk Road has evidence.
One of the Wnklevos brothers, Cameron remarks in a philosopher tone:
“No one will reject the fact that it is a wild-wild west. It attracts cowboys, and I don’t think that anybody might be against the appearance of a sheriff.”
The year 2013 pushed the countries and their regulators to form an opinion of the Bitcoin and other cryptographic currencies. In March the US FinCEN determined the virtual exchange services as providers of financial services, who have to obey to rules on anti-money laundering. At same time the Department of Homeland Security was one of the most worried about this solution, but the Federal Reserve of the United States and Department of Justice accepted the legality of the transactions in Bitcoin. Additionally every state of the country determines individual rules and regulations on the matter, where New York as a jurisdiction is the harshest. Currently, the officials of the state discuss the possibility to introduce licenses to business engaged in the virtual coin environment.
In the middle of December the European Banking Authority also issued a warning on the use of the digital currencies. The exchange services are leading organizations that bear risks for end-users due to lack of proper regulation. Of course, the following accusations included money laundering, financial fraudulences and other criminal deeds. The most loyal reaction was received from Germany. The Bitcoin acquired the definition “private money”, but the Central bank of the country followed with publishing a warning to legal entities and individual users, who should not understand under Bitcoin an alternative to the existing national fiat currencies. Switzerland decided to protect their citizenry by assigning to Bitcoin the term “foreign currency”. The French authorities state that they are following the progress and development of the currency and “are anytime ready to seize the bad guys”.
The Scandinavian countries have chosen a different way to find a solution to the existing clause. The Finnish parliament sees in Bitcoin raw materials. The Head of Division at Bank of Finland Päivi Heikkinen explains:
“The official definition of currency is provided by the law, and Bitcoin does not correspond to it. Bitcoin is neither a payment instrument, as there is no issuer, which is responsible for operations with it.”
In Sweden Bitcoin is a payment matter or tool, but in the nearest time it can be equated to art objects marked as an asset. It will provide the mechanism to collect taxes from operations with currencies.
The reason for such differences of opinion on the Continent and even inside the European Union can be associated with the lack of experience – no similar matter has occurred in the modern history. Mr. Raevsky continues:
“It can be assumed that the laws of different countries are going to change many times. But it is not a principle problem – it determines only the operations with these currencies in bookkeeping and the local taxation procedures.”
The turning point after him is the general decision of a country to accept or reject Bitcoin as a matter of exchange and a payment method.
The Wind Rose of Bitcoin
Moving from Europe to Asia we can notice a higher degree of protest against the spreading of the virtual coins. The central fortress to suffer the attack is Bitcoin. In November the sky was clear – besides the interest voiced by Baidu, the exchange service BTC China started a conversation with authorities on the development of the coin in the status of a legal currency. Just a month after, the Central Bank of the People’s Republic of China succeeded to indirectly ban the Bitcoin. All local financial organizations – from biggest banks to minor players on the credit market – were prohibited from operations with Bitcoin. None of them could provide deposit and withdrawal operations. This reduced the ways to acquire coins almost to a zero. The next step was to minimize the anonymity of the users of the local trading institutions. The reduced privacy is already against the basic principles of the virtual moneys. There is no way now that the organization will not report on doubtful deals and transactions to the corresponding department.
Indonesia has voiced the decision not to include the Bitcoin in the list of currencies. Even the usage as a payment method is against the local laws. Thailand named the Bitcoin an illegal matter, which automatically leads to termination of all businesses with Bitcoin on the territory of the country. Singapore also sees no currency in Bitcoin, but determines it as an asset or good, but taxation in this case cannot be excluded.
Russia is the latest country, and definitely not the last, to publish a negative statement of the virtual currency. The Central Bank of Russian Federation warns the private users and legal entities from risks that might occur due to the use of the digital coins. All operations of exchange of Bitcoin towards goods, service, rubles, foreign currencies and payments for work are seen as doubtful. The link with money laundering and crimes as terrorism is not going to be overseen by officials. This note was very surprising, especially knowing that Bitcoin received support from many authorities of the country before, the trademark is disputed by two competitors, but German Gref gave very optimistic comments. He has called the coin an “interesting global experiment”, but possible bans – “colossal step back”.
Mr. Belyakov has a reasonable explanation for this sudden change of mood:
“The Central Banks of many countries see in Bitcoin a threat to the national currency and emission policy, as well as uncontrolled growth of anonymous payments. They cannot ignore Bitcoin anymore.”
He also adds that the currency has no future in Russia.
Taking in account everything mentioned above an ordinary person would definitely avoid Bitcoin. Experts and regular users see the risks from a slightly different perspective. Belyakov, for example, describes the mood as following:
“Some call the Bitcoin-speculators crazy; others try to catch the wave of success. If You buy Bitcoin today than the maximal risk is the losing of 100% of investments, but what is the potential income? From the theoretical point of view it is unlimited and, possibly, exceeds the risks.”
The trend of this year is going to be same, as it was during the finish of 2013 – the price for the Bitcoin will be determined by the amount of new companies accepting it as a payment method. Currently, there are two new hotels in Las Vegas (the city hosted a conference on cryptocurrencies recently) - The D Las Vegas Casino Hotel and Golden Gate Hotel & Casino. eBay revised its policy and coins will be sold on the platform from the 10th of February. Richard Brenson of Virgin Galactic approved the information that “six or seven persons” have paid for the trip with the space ship with Bitcoins. Zynga tests the coin currently, but Vera&John casino have already included Bitcoin in the list.
The professor of the University of Boston, Mark Williams is sure that the bubble is going burst very soon. The price will drop to the initial 10 dollars of even below this mark. In case You are going to make real money with alternative virtual forms of currencies, hurry up – we would be pleased to see some of our devoted readers among the richest people of the world!
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