Global Uncertainty Could Drive Bitcoin to New Record High in 2017
Bitcoin, the virtual currency used for online transactions, crossed the $1,000 mark on the first day of 2017. That’s its highest price of the past three years. The digital currency, which had already peaked at more than $1,000 in the fall of 2013, continued its momentum on January 2. It closed at just over $1,024 on that day. (Source: “Bitcoin breaks $1,000 level, highest in more than 3 years,” CNBC, January 2, 2017.)
Bitcoin is a cryptocurrency. It works like the U.S. dollar or the British pound, but it is not subject to any central banking authority. This is its special quality; Bitcoin is independent of politics. Regardless of who’s in control, Bitcoin’s value is based simply on the dictates of the market.
That said, if Bitcoin is moving higher, it suggests a lack of confidence in state authorities. The more bullish the sentiment on Bitcoin, the more the distrust for central banks and other government controls on currency. Therefore, currency traders can use Bitcoin’s demand—or performance—as an indicator of overall confidence.
Bitcoin allows investors to bypass the normal risks that hang over portfolios. For instance, Bitcoin would have resisted the subprime mortgage crisis. This is because neither the bankruptcy of a bank or a state would have had any effect on its value. The subprime disaster and the resulting recession, whose effects linger to the present day, were the kind of event which allows Bitcoin to thrive.
If all states and corporations were to collapse tomorrow, Bitcoin holders would still have an investment worth holding. Indeed, Bitcoin might be considered both a symptom and a predictor of market performance.
Bitcoin Has Thrust Through the Market, Fueled by Uncertainty
Bitcoin was worth just a few cents when the cryptocurrency was launched in 2009. It has become a symbol of the uncertain economic context. Bitcoin’s surge over the past few months could well reflect the seemingly unstoppable demise of the yuan, China’s currency.
Chinese authorities are resorting to ever more draconian controls to stop capital flight. Meanwhile, Wall Street has set new records since Donald Trump won the U.S presidential election. This has sent the markets into euphoria. But both situations should raise concerns.
China, the world’s second-largest economy, is breaking its own rules. The government is allowing gross domestic product (GDP) to slip below the 6.5% growth threshold. Meanwhile, Donald Trump will become president in three weeks. No more tweets; Trump must govern. It’s one thing to criticize Obama and his handling of the economy, and it’s quite another to actually DO a better job (emphasis intended).
It’s no wonder Bitcoin has crossed the $1,000 mark again. All investors should heed the message it sends. Bitcoin, which has doubled in value in just six months, suggests that the current market strength or “dynamism” is fragile. There is fear about the U.S.Federal Reserve’s interest rate hike program.
For starters, it might be premature. Trump has only spoken so far; he has not proven he can deliver on the economy. If he fails, the market bubble that has pushed the Dow Jones to within 85 points of the elusive 20,000 mark early on January 3 could later burst like fireworks.
The high dollar—with further strength-injections from Fed rate hikes—could prove disastrous for key emerging markets. China is merely one of the potential victims. There are also India and Venezuela. (Source: “Bitcoin Investors Should Send A Thank You Note To India’s Modi And Venezuela’s Maduro,” Forbes, December 25, 2016.)
As for the euro, a whole series of political clouds are casting shadows over its very ability to survive as a currency beyond 2017.
Now Bitcoin appears to be heading toward its historic high set in late November 2013; it could cross that mark in 2017. Bitcoin also appears to have stabilized. Indeed, the cryptocurrency has suffered its own volatility in recent years, flying up to $1,100 in 2013 and collapsing to about $150.00 in early 2015.
But it appears to have found a higher floor, having not fallen below $500.00 for the latter half of 2016. While many have decried 2016 as a terrible year, 2017 has many potential shocks in store. Three major elections in Europe—including a key German one—could put the European Union (EU) on its knees. It could wipe out the euro currency altogether.
Bitcoin as an alternative to cash makes it possible to move funds quickly and anonymously all over the world and without the transactions passing through a central authority.