Bitcoin: happy new year or heavy hangover?

Bitcoin: happy new year or heavy hangover?

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You’re already well informed about bitcoin’s rocketing price over the new year period; it’s a roller-coaster we shared. Elated, with an undercurrent of giddy nausea, am I right? But can we draw any wisdom from the recent price activity? Taken in a short or long term perspective, there are many predictions to be made, but I’m sure like me, you want to cut through the BS and see what’s really been happening. So sit down, take another alka seltzer, and let’s dive into the nitty gritty that explains why you were suddenly rich for a few days last week.

Bull run in a China shop

Once again the voices of hypocrisy are raised when bitcoin forces its way into the financial discourse. In the week that saw the USD value of bitcoin reach within a hair’s breadth of its all-time high, the Financial Times decried bitcoin as a pyramid scheme. Actually, the western media’s reaction to bitcoin’s rapid ascent this week is quite telling. Since exchanges based in China account for more than 90% of trading volume, the western financial interests aren’t just up against the rise of technology, but powerful Eastern rivals.

Breaking the $1,000 barrier on January 1st, what was described by some as a bull run continued for a few days right up to the value of $1,140 – just $25 short of the 2013 record. The market cap also reached a significant milestone, again within mere percentage points of its previous record of £14.9bn (not taking into account lost coins or the alleged book-cooking of MtGOX, which could mean this figure is somewhat inflated).

The People’s Bank of China also saw fit to issue a statement in the midst of the upsurge, calling bitcoin’s price ‘highly volatile’ and advising its citizens to ‘invest with rationale’ and ‘bear possible risks on their own.’ Perhaps most interesting of all though is that the valuation reached exactly CNY8,888 before the price dropped off again. The Chinese consider 8 to be a lucky number, so what better value to cash out your profit?

It’s also likely that China’s foreign currency exchange laws played a part in our hedonistic new year’s party. The law allows citizens to move $50,000 worth of Yen each year. It’s quite possible that many investors waited for the very end of the year to take advantage of bitcoin’s value, then when the new year begun, a new uptake of investment capital was waiting in the wings.

Going for gold

Gold is so ubiquitous as a measure of quality or value that it’s easy to forget its importance in financial terms. Pretty much every currency in the history of money has been either backed by gold, or made out of it. It’s the most precious and desirable of all the elements, and the one against all others’ value is measured. Why am I telling you this? Because bitcoin’s recent run brought it to near parity with gold. In fact, in some exchanges, it exceeded parity. WHAT?! Hold that thought…

Bubblier than the holiday champagne?

So wait a minute. Something that’s made of nothing, has no physical goods or materials as backing, is decried as a ponzi scheme by the mainstream financial media, and operates outside of any political jurisdiction is suddenly as valuable as gold?! There’s a reason so many people aren’t buying it, and it’s because nobody’s buying with it. If bitcoin is ever to prove itself to be anything other than a mere bubble, we all need to start using it for its intended purpose, instead of sitting on it and waiting to get rich. I hope you enjoyed your 15 minutes of portfolio inflation. But now lets get back to the real task at hand: bringing bitcoin out of the darkness.

This article represents the personal opinion of the author and is not a recommendation to buy or sell Bitcoins.