Bitcoin – what are its prospects

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Since its emergence in 2009, Bitcoin has become the world’s most widely used cryptocurrency. This currency is created from a block chain, which has a public ledger of all transactions in the network. It can be mined by the use of computer power. The Bitcoin does not have a centralized exchange and this may result in differences in its prices, which may give opportunities for arbitrage (Gervais, Karame, Capkun & Capkun, 2014).

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The Bitcoin has had a volatile trading history since it was initially traded. The initial price was around $0.0008, which rose to around $0.08 in mid-2010. Initially there little interest among cryptographers and individuals who wanted to make transactions that could not be traced. The currency gained exposure between 2012 and 2013 when retailers started accepting Bitoins. The increased exposure also resulted in some setbacks such as the shutting down of the Silk Road website in 2013 and the collapse of the Mt. Gox bitcoin exchange in 2014. The real trading of Bitcoin started in 2013 at the price of around $ 13.50. The prices shot beyond $220 in early April before reverting to around $70 before the end of the month. The year saw many fluctuations in the prices of the Bitcoin. The price went up as high as $1,120 in November of the same year (Osterrieder, Strika & Lorenz, 2017).

These fluctuations were a result of new exchanges and an increase in Chinese Bitcoin miners. Trading stabilized in early 2014 but there was a crash in February, which coincided with the bankruptcy filed by Mt. Gox exchange. The prices began to gradually decline in mid-2014 and stabilized in 2015.  However, there was a spike in prices towards the end of 2015. In 2016, the price of the Bitcoin doubled from a price of around $400 to around $1,000 at the end of the year. From these trends, it is likely that the price will increase further in 2017. However, there are critics who argue that the recent increase in the prices of the Bitcoin is a bubble that is waiting to burst (Gervais, Karame, Capkun & Capkun, 2014).

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The price of the Bitcoin will increase further in 2017 because of the increase in businesses that accept it as a form of payment. This increase will be propelled further by factors such as a strong market momentum, an influx of new money and the rising interest rates. 2017 will also see the emergence of the Bitcoin as an alternative form of investment, which will contribute to the increase in its price. The recent trends associated with the Bitcoin will also see smarter regulations, increased interest among consumers and increased trading volumes. The year has started with high prices exceeding $1,000. This is similar to the highs of 2013, which was followed by a drastic reduction in price. This is what the critics consider bubble which is about to burst. However, unlike in 2013 there are some differences in 2017. Unlike in 2013, the size of the computing power of the Bitcoin network has increased and the number of merchants as well as the exchange volumes has increased. In addition, the rise of the prices in 2013 was a result of fraudulent trading and price manipulation that was possible in the illiquid and immature market and led to the collapse of Mt. Gox. The rise in the price in 2017 is supported by a liquid and developed market with several exchanges competing against each other with no manipulation of prices (Osterrieder, Strika & Lorenz, 2017).

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  1. Gervais, A., Karame, G., Capkun, S., & Capkun, V. (2014). Is Bitcoin a decentralized currency?. IEEE security & privacy, 12(3), 54-60.
  2. Osterrieder, J., Strika, M., & Lorenz, J. (2017). Bitcoin and cryptocurrencies—not for the faint-hearted. International Finance and Banking, 4(1), 56.
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