Bitcoin's next boom

Published on March 29th, 2017

2017 has been an exciting year for Bitcoin with the price soaring to highs above $1200, up from just $450 about a year ago. The technology has been declared dead by experts over a hundred times, has seen soaring heights and disheartening lows, and continues to face infighting within its own ranks.

Yet Bitcoin always lands on its feet somehow. It now faces its biggest challenge to date with a split in the community of developers that support the Bitcoin codebase, threatening to fork the network and effectively creating two versions of the cryptocurrency. Bitcoin experts aren’t worried about the long-term outcomes of this, and some even think that the short-term effects will be positive. It’s an entirely new asset class, argues Luno’s Werner van Rooyen, and there are no precedents to base outcomes on.

Luno is South Africa’s leading Bitcoin exchange and an AlphaCode member. The company recently rebranded from BitX and has been booming following a successful Series A funding round, and recent activity surrounding Bitcoin.

Van Rooyen says that much of the growth of Bitcoin is owed to it being an alternative asset class that investors are getting increasingly excited about.

“Bitcoin is a new and evolving technology. For the first time in human history is it possible to create, send and operate a currency without the need of a central government, company or individual,” explains van Rooyen.

“We are very much at the early stages of development, with some of the most exciting use cases yet to come, but there are already two that are crystal clear; Bitcoin as a transfer or payment mechanism, and Bitcoin as a store of wealth, an alternative asset class.”

It’s the second that van Rooyen says is currently enjoying the lion’s share of activity from Bitcoin adopters thanks, in part, to the recent activity in Bitcoin price. Volatility is what active traders look for and Bitcoin has offered no shortage of it.

What Bitcoin offers as an investment goes way beyond price movement, however, and van Rooyen argues that this is due to the fact that it has been found to neither be correlated nor inversely-correlated with most other asset classes. It is, rather, uncorrelated.

“This is exactly what has been attracting more institutional investors: an asset class that operates mostly independent of the movements of all other asset classes,” he explains.

“Bitcoin shares some of its characteristics with other assets. Like stocks, it is traded on multiple markets in multiple currencies around the world, and like gold, it is limited in supply and generally seen as a safe haven against currency depreciation. Like cash, you can use it to make payments and transfer wealth, and like real estate, it is seen and taxed by some authorities as property.”

While it shares these attributes with other asset classes, van Rooyen doesn’t believe it should be compared to them directly, especially not as a currency, despite it being the best performing currency in the world for three years running.

“It should be seen as something completely new,” he says.

This makes Bitcoin appealing, especially to tech-savvy investors, but van Rooyen insists that we should still be exercising caution.

“I’m not saying that you should liquidate your investments to buy Bitcoin. One should never place all your eggs in one basket,” he says.

“Also, it is a new technology with a fair amount of volatility, although this is going down over time. It’s not suited to everyone’s appetite. That said, there’s a clear trend of hedge funds, banks and institutional investors researching and investing in Bitcoin, as a new asset class with a completely new set of rules.”

Van Rooyen recommends that investors don’t buy into things they don’t understand.

“Instead, start educating yourself about it already, before you miss what is probably the most important financial innovation of our time,” he says.

Also, consider the other opportunities Bitcoin offers for you and your business. Setting up payments in Bitcoin is trivial, for example, and the rise of smart contracts is an exciting way to track agreements, transfers, and just about anything else using the Blockchain.

Bitcoin might have run into its next set of challenges, but it’s not going away.

Visit the Luno website.