The U.S. dollar has had a nice run. It’s been the talk of global currency trading all year long.
And why not? After years of a weak greenback due to dovish Federal Reserve policy, the Dollar Index has extended big 2014 gains, up near-9 percent against a basket of major world currencies this year. Some individual currency trades, like USD/Brazil Real, have netted currency investors huge returns.
But to find what’s arguably been the best global currency in 2015, an investor might need to put quote marks around the term “global currency.”
It would have been easy to dismiss bitcoin after a surge that had taken the digital currency’s price over $1,000 on some exchanges crashed in late 2013, but it’s back, up more than 40 percent this year to a value of $428. And bitcoin backers say despite all of the detractors and the 2013-14 doldrums, the controversial digital currency will continue up, as the number of bitcoin users and transaction volumes around the globe surge.
“We’re seeing this up and to right growth in transactions,” said Coinbase vice president Adam White. “That’s the utility value going up as people use it more.”
The number of financial institutions — as well as self-regulatory bodies, like the Depository Trust Clearing — endorsing the blockchain technology has given credit and value to bitcoin. “It’s gone from cool tech ‘I don’t understand’ to more mainstream,” White said.
Bitcoin: By the Numbers
Venture capital investment in bitcoin-related businesses reached $1 billion in 2015.
The 100-millionth bitcoin transaction is expected to take place before the end of the year (per TradeBlock estimate).
More than 200,000 daily bitcoin transactions took place on average in December, up 136 percent from the year-ago period.
More than 51 percent of bitcoin users are based outside the U.S. versus 44 percent in January 2015 (based on Coinbase users).
Bitcoin-related code written by developers reached 7,000 in December, up from 1,000 bitcoin codes in mid-2013. The number of PayPal-related codes is below 3,000 (based on Github depository references).
What’s behind the surge?
What can explain the rapid rise in bitcoin from October to today, a period of three months during which the majority of the digital currency’s annual gain has been made?
Bitcoin backers say part of the market’s makeup defies any direct explanation for price movements over short periods of time, but there are a variety of factors that can help explain the surge, without any one being “provable.”
Right around the time bitcoin began to surge in October, the European Court of Justice rules in late October that bitcoin transactions were not subject to the VAT (value-added tax).
Recent months saw the price for bitcoin paid in China surge to a notable premium, a sign of high demand.
The year 2016 is also going to be known as a “halving year” for bitcoin: Miners, those who “mine” bitcoins to add to the supply, will be paid half the amount as previously for mining new coin, an event that takes place every four years. But bitcoin experts said that “efficient market theory” implies the market has already “baked” this event into bitcoin’s price.
Skeptics, not surprisingly, remain unconvinced.
Marc Chandler, senior vice president at Brown Brothers Harriman and a global currency expert, has followed bitcoin for years and in print has scoffed at some Wall Street predictions: for example, that central banks should consider bitcoin for reserve purposes and that its intrinsic value could be more than $1,000.
Chandler is still a nonbeliever. “I don’t think it meets the economic definition of money.”
Chandler’s skepticism continues to be predicated on what he views as the contradiction between bitcoin’s use as a store of value (hoarding it in a time of fiat currencies) and as a means of exchange (using it as an alternative to fiat money). The low volume of bitcoin trading and lack of liquidity deny it the critical mass needed to qualify as money, he said.
[“source-businesstoday”]
