Bitcoin Mania – Fairy Dust or World’s Global Currency?

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During the past several weeks, it’s been almost impossible to avoid hearing or reading a story about bitcoin, particularly within the financial community.  It seems that “bitcoin mania” is sweeping the globe. 

Given the fact that bitcoin is still in its infancy stage, there remains a number of unanswered questions concerning the future direction of the entire digital currency platform. 

One of the more popular topics in bitcoin nation centers around its eventual status as a legitimate global currency. 

Will bitcoin ultimately be accepted by consumers, investors and central banks as a mainstream global currency?  Before we attempt to answer the question, let’s briefly review bitcoin’s meteoric rise within the digital currency universe.

 

The Birth Of Bitcoin

Bitcoin first appeared on the scene in 2009.  The original inventor of bitcoin remains a mystery.  The inventor’s pen name is Satoshi Nakamoto.  However, the person’s true identity remains unknown.

Bitcoin remained in relative obscurity for the first few years of its existence.  In fact, most people considered bitcoin to be a novelty item doomed for failure.  Very few consumers used bitcoin as a medium of exchange and even fewer  merchants accepted it as a method of payment. 

Virtual currency didn’t seem that appealing.

Bitcoin began to gather momentum when it exceeded $100 for the first time in early 2013.  The media began to pay attention to bitcoin in November 2013, when it surpassed the $1,000 mark.

From 2013 through 2016, bitcoin slowly increased in popularity, as more merchants began to accept the digital currency. 

However, for the most part, bitcoin remained under the radar screen of most people in the general population.

Things began to change dramatically in 2017, as the bitcoin price exploded to the upside.  The real fireworks began in May, as bitcoin surpassed $2,000. 

evolution of bitcoin

During the past seven months, the price has literally exploded to the upside, recently pushing above $12,000.  “Bitcoin fever” has descended upon the entire planet.   

These moves in price are highly emotional and irrational.  But never forget, “markets can remain irrational longer than you can remain solvent.” – JMK.  Even in the post entitled Cryptocurrency Trading. What Side Will You Be On?, I mentioned a consolidation near the end of November.

We then had a one day consolidation of price that allowed new buyers to enter the market at better prices and then the move began it’s march forward.

 

Bitcoin Or The Beatles.  Which One Is More Popular?

There are several reasons why the digital currency has exploded in popularity.  One of the main reasons involves bitcoin’s complete independence from central banks and other monetary authorities. 

Consumers and investors are drawn to bitcoin because it operates outside of the traditional currency system. This is a very attractive quality to most people in the digital currency community.      

Of course, therein lies the problem with bitcoin. 

Digital currency enthusiasts are enamored with the fact that there is no government control, regulation or intervention.  However, digital currencies (including bitcoin) will have a very difficult time gaining acceptance as a legitimate global currency unless it falls under the umbrella of government regulation. 

It’s highly unlikely mainstream consumers will embrace the digital currency platform until there are laws and regulations in place to provide some type of recourse against fraudulent activity. 

At this point in bitcoin’s life cycle, it’s much too early to know how or when the digital currency will be adopted by central banks and financial regulators.  In fact, one could argue that bitcoin may never become part of the global currency system.  It may continue to operate outside of the regulatory universe.      

 

Governments Are Looking At Bitcoin, Hard

Based on the current trend of the market, it does appear that digital currencies will eventually be drafted as a global reserve currency, right alongside fiat currencies such as the US Dollar, Euro, Japanese Yen, Swiss Franc and other G20 national currencies. 

However, where does this leave bitcoin in terms of its membership in a government regulated system?  Will bitcoin become part of the new regulated digital currency platform? 

Nobody knows the answer to these questions.  At the moment, it’s 100% speculation.  It’s impossible to forecast.  However, there are government leaders working behind the scenes to introduce some version of a digital reserve currency (with or without bitcoin).

We must remember, bitcoin originated in the private sector.  The government will undoubtedly want to create its own version of a digital currency.  Will this include bitcoin and other privately created digital currencies?  Once again, these questions are unable to be answered at this point.     

 

Is Bitcoin Another Dot Com?

In many ways, the meteoric rise of bitcoin is reminiscent of the dot-com mania during the late 1990’s.  The internet revolution swept across the nation, as investors plowed their money into dot-com stocks.  During the final few years of the 1990’s, the new Information Age had taken the country by storm. 

Wall Street had turned into the wild west. 

Of course, all good things must end.  The dot-com bubble burst in 2000, which ushered in a brutal recession for the first few years of the new century.  Only a small handful of dot-com stocks survived the crash.  The vast majority of these stocks disappeared into obscurity.  Investors were left holding the bag.

  • Is this the same fate that awaits the new digital currency revolution? 
  • Are we setting ourselves for another implosion?  

Based on other historical events in the financial sector, there is a strong likelihood that digital currencies will experience a massive shakeout at some point in the future.  However, this certainly doesn’t mean that all digital currencies are headed for complete ruin.  On the contrary, at least a few will survive and lead the digital currency revolution to the next level.

We must remember that after the dust settled in the dot-com implosion, there were a few incredibly powerful companies that emerged from the wreckage.  Two names at the top of the list include Amazon and Google. 

The same will probably be true with digital currencies. 

A few of these currencies will go on to achieve historical greatness.  Will bitcoin be one of the survivors?  Only time will tell.       

 

Will Consumers Embrace Bitcoin?

In its current format, bitcoin is simply too volatile for the general public to use as a medium of exchange on a daily basis.  It’s highly unlikely consumers will replace their US Dollar or credit cards in favor of bitcoin unless the volatility is greatly reduced. 

The dramatic price movement of bitcoin is one of the main arguments for those who favor increased government regulation of digital currencies.  They claim bitcoin (and other digital currencies) will never be regarded as a legitimate global currency unless the volatility is reduced by a substantial margin. 

This is a valid argument.  Consumers prefer stability when it involves their local currency. 

The future path of bitcoin is completely unknowable.  In many ways, that’s what makes it so intriguing.  Will bitcoin (and other digital currencies) eventually be accepted as a legitimate global currency?  It’s probably safe to assume that some form of digital currency will be adopted by central bankers and government entities.  Will bitcoin be included in the mix? 

That’s the $1 million question.       

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