Email Contact Phone Company Visit Website

Location Head Office

Scale Space, 58 Wood Lane, London, W12 7RZ
United Kingdom


+44 (0) 20 7462 9018


bobsguide Support
[email protected]
Back to all bobsguide announcements

Demand for Bitcoin resurgent after Cyprus crisis and outages / hacks

The first days of April have been marked by volatility in the price of online currency Bitcoin (BTC), which touched a record high of $147 earlier this week, after previously falling back under the influence of the Cypriot crisis and mid-week hack attacks against Instawallet and a one-hour outage at the Mt. Gox Japanese digitial currency exchange, which temporarily caused a dip.

The distributed denial of service (DDoS) attack which caused a one-hour outage at the currency’s Japanese Mt. Gox exchange and the depository hack attack at Instawallet saw Bitcoin’s price drop down to $112 in the middle of this week but it soon recovered, once more approaching its peak price as the working week drew to a close.

The Bitcoin virtual currency, which has no bank or government backing, has seen its price accelerate since the crisis in Cyprus amidst increased perceptions of the BTC currency unit as a ‘safe haven’, tripling its value in the past month. As recently as last November, BTCs were changing hands for little more than $10.

Bitcoin Digital Currency: A Brief History
The maximum possible number of BTCs that can exist is 21 million, meaning that at present prices the currency is estimated to be worth anywhere between US$1.4bn to US$3bn. Trades can be made with fractions of BTCs, providing flexibility that enables transactions to proceed.

BTC was established in 2008 by its anonymous mysteriously-monikered creator, Satoshi Nakamoto. It is unclear if the developer is an individual, a Japanese collective or another body, but people have been trying to solve the evolving algorithm set down then in order to 'mine' it and release currency units. The concept was that users could employ it as a means of payment that bypassed the banks through a purely peer-to-peer (P2P) version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution. Its popularity increased rapidly in the first half of 2011, but crashed in June that year when a cyber-attack resulted in US$500,000 of the currency being stolen. Similar to gold the digital currency is a finite resource with its 21m BTC units expected to be 'mined' over the next decade or two, which tends to keep its price high.

Last month’s near-meltdown of the banking system in Cyprus has seen a renewed surge in the bitcoin volumes being traded and the price being paid for BTCs has consequently risen. Its popularity is based partly on the lack of any need for a central bank and it is popular with ‘hacktivists’ for its lack of integration into the global financial system and relative untraceability - but this also potenitally makes it popular with money launders and criminals. The P2P network backing the currency enables transactions to continue as long as there are people willing to exchange the coins for something of value, or to donate them, and exchnages such as Mt.Gox have sprung up to enable trading.

For Europeans worried about the possibility that their bank might shut, trapping their savings inside and not opening again until they have been forced to accept a eurocrisis ‘haircut’ - as has happened to those with substantial deposits in Cypriot banks - the alternative of the BTC digital curreny, which cannot be so restricted, is increasingly attractive.

A Bubble Developing?
A growing number of sites online accept BTCs as payments for items, including some electronics sites and other, less legal hacktivist websites. The new currency has developed from being an internet curiosity and a big wow at the 2012 Digital Money Forum (a conference now renamed Tomorrow’s Transactions) that BTC units are now attracting the attention of market watchers and traders, who say that the threat of a bubble developing could be followed by long-term stability.

“As with all bubbles there is a good story behind it; the trick would be to measure both the supply side and more importantly demand side value of BTCs," said Sebastien Galy, a currency strategist at Société Générale (SG).

“With confidence in the BTC potentially increasing, the market actually starts building up its intrinsic value as a means of exchange, which might eventually make it potentially more stable in the long-term. Some professional investors believe the BTC thing is going to rise, although through a very bumpy road in the next few months."

Others believe that the rapid rise in BTCs’ value may mean that it will become less useful as a currency, as it becomes more attractive to hoard it than to spend it - because exchanging it for any other item or service risks losing out on the rising value.