The success of Bitcoin has certainly been a disruptive innovation in field of finance; however, many investors who were initially hesitant has begun investing in this unique digital currency. Bitcoin is a digital currency that can be earned by solving complex mathematical problems using computers, with its main feature being that the currency is decentralized, meaning that the production and transfer of Bitcoins are not controlled by any government. Additionally, unlike the Canadian currency which can be printed by the government, there is a finite amount of Bitcoins that can be discovered.
Retrieved from: http://business.financialpost.com/investing/how-hedge-funds-are-driving-the-bitcoin-rally
Raszl’s blog provides a concise overview of Bitcoin’s benefits and risks. Advantages of Bitcoins he noted included the absence of transaction fees and low potential inflation due the limited and finite number of Bitcoins. As both a pro and a con, the Bitcoin provides high anonymity, as trader’s identities are anonymous and transactions are difficult to track. Although this secures private transactions, it also provides a new mean for illegal activities. While providing many thoughtful points, some of Raszl’s suggestions could be expanded upon. He suggested that being easy to carry is an advantage of Bitcoin. However, debit cards and various digital banking systems are also easily carried. By introducing a point difference of Bitcoin, its anonymity and decentralized nature, Raszl could further his point by suggesting that Bitcoin is not only a currency that can be carried easily but also one that provides anonymity, in contrast to digital banking systems which require verified identities and are monitored.
Despite the chief executive of JPMorgan Chase, Jamie Dimon, calling Bitcoin a fraud, many large institutional investors, mainly composed of hedge funds are beginning to capitalize on cryptal currencies. This influx of large investors will bring even more volatility, as each hedge funds will control a large proportion of the market and the exiting of a few large investors could cause significant price drops and a lack in confidence in cryptal currencies from individual investors.
Ultimately, although Bitcoin is seeing greater recognition in the financial world, it is still a high-risk investment. The lack of government control and the heavy influence hedge funds hold over the currency allows for significant volatility. Additionally, unlike regular currencies which is monitored by fiscal policies and back by authorities, Bitcoin illustrates questionable long-term growth as it’s not protected by any government and is largely based on a consensus of its value. Moreover, as previously mentioned, the anonymity of Bit coin is promoting black market interactions, which will likely eventually lead governments to intervene. Therefore, while not an ideal long-term investment, in the short-run Bitcoin has illustrated exceptional growth and riding with hedge funds on the current spikes may yield handsome profits.
Bitcoin to USD exchange rate chart. Retrieved, 8 Nov. 2017, from: http://markets.businessinsider.com/currencies/btc-usd
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