The fall in Chinese stocks at the start of this year has boosted bitcoin above $450 as investors seek security in this currency after the Shanghai Composite index dropped by 7.3%.
China is responsible for over 80% of global bitcoin trading and according to Charles Hayter from CryptoCompare, many are choosing this currency because of the recent renminbi depreciation. “The Chinese Bitcoin Exchanges are being used as a means to exit the renminbi and as a flight to safety. Bitcoin is living up to its name as a form of digital gold,” Hayter was quoted in CityAM.
Despite being dangerously volatile, research completed by The Money Project reveals that the cryptocurrency was the best forming currency last year, which was evidenced by its increase of 35% against the dollar.
November 2015 saw bitcoin surge by 50% in three days and exceed the $500 mark after the EU announced plans to exempt it from VAT, according to CityAM. In other research, Magister Advisors has found that over the next 15 years, bitcoin will become the 6th largest reserve currency.
Chief executive officer of a bitcoin exchange based in Shanghai BTCC, Bobby Lee, believes that bitcoin mining is looking more attractive as a result of these staggering prices. “When the price goes up, there’s more confidence in mining, and mining equipment makers go and design the next-generation chips. For people who already bought equipment, their ROI will increase,” Lee was quoted in Bloomberg.
However, CEO of bitcoin exchange Coinbase, Brian Armstrong, highlighted in Wired that the price of bitcoin is not the best way of judging the health of a digital currency. “Sometimes, I feel like running a bitcoin company must be like running a public company. Everyone is so focused on the price, and that causes short-term thinking.”
Armstrong advises looking at the usage of bitcoin and to focus on how much this figure rises. Wired explains that the main aim for currency exchanges is to make bitcoin more accessible: so anyone can store, send and receive money. “We want the world to have an open payment network,” Armstrong said and Wired describes as an “Internet for money”.
Alongside this, the rise in bitcoin activity does not ensure that people are actually using this cryptocurrency to make payments, as according to Overstock.com company spokesperson Judd Bagley, transactions only account for 0.05 to 0.1% of the organisation’s sales. “With basic payment applications, we do see usage creep up. But it’s important not to be overly optimistic there. It’s fairly clear that a American consumer – someone in a developed country – has a fair number of ways to pay for stuff already,” Bagley said.
Bagley continued to explain that bitcoin may be popular as a new form of payment, but will still need something physical to pay with. “Bitcoin has been in the new a lot as of late, and it has been good news. People will see that and say, basically: “I want a cash option on the future of the technology. It’s like if you were able to buy a small piece of the Internet in 1994. Would you?”