Wallet in the cloud: The rise of the Bitcoin cryptocurrency

The United States has the dollar, Japan has the yen, while the Internet has Bitcoin. It is a computer program that acts as a unit of account or payment system that only exists in the digital world. Therefore, it is not minted from metal or printed on paper, which is always the case for real currencies. Its monetary value is completely virtual.

 

Bitcoin is the very first example of a growing trend known as cryptocurrency. During its infancy (c. 2008), there were a lot of negative speculations about it, including its authenticity as an acceptable monetary unit. However, nearly a decade since its creation, it has become a popular way to ‘buy’ goods or services. In fact, for the first time since its birth, the value of 1 Bitcoin has already eclipsed that of an ounce of gold.

 

Coin 1

Image source: coindesk.com

 

Bitcoins are basically ‘rewards,’ derived mainly by winning in a competition in which users—also known as miners—offer their computing power to verify business deals into the blockchain, which is a ledger or database that record all bitcoin transactions. As of February 2015, bitcoin is accepted as a payment method by over 100,000 merchants and vendors worldwide.

 

Early this month, the Internet currency was able to gain 3 percent, while the precious metal fell down by 1.3 percent. Looking at the progress data of both assets from a year ago, Bitcoin was able to nearly triple its value, while gold practically stayed at the same level. Both of them are alternative assets, though it is important to note that they aren’t usually traded in correlation.

 

Coin 2

Image source: bitcoin.org

 

Gold is practically the “gold” standard of all alternative assets. Investors usually use it as a hedge against potential losses from traditional assets such as stocks or real estate. That is why Bitcoin overtaking the valuable metal is notable since some predicted that the former would replace the latter as the preferred alternative asset. One can only speculate as to what could happen if ever the SEC approves of its listing.

 

Despite its remarkable rise in recent years, bitcoin is yet to truly prove itself as a viable and safe asset to be used in numerous transactions or even as a good addition to one’s investment portfolio. It cannot also be commoditized, unlike precious metals or crude oil. As such, bitcoin prices will tremendously suffer if the SEC does not approve a bitcoin ETF. Serious investors and investment managers will have to make extensive research before they can consider the virtual asset as something they could venture in.