The new virtual digital currency Bitcoin has endured many steep ups and downs in its brief past. However the currency took a hard hit today when China’s largest Bitcoin exchange said it will stop accepting deposits in yuan, which is their local currency.
Bitcoin has been around since 2009 through an open-source program, where Bitcoins are created and traded through a decentralized network of servers. This system of computers is set to only produce a maximum of 21 million Bitcoins. The worth of a Bitcoin is determined only by how much money someone is willing to spend on purchasing one. The digital currency was set up in hopes to become an alternative for a cheap global payment system. The ideology around Bitcoin is so new and so innovative that it often causes controversy from financial and market analysts alike.
The controversial currency dropped from its record high in November of $1,100 to as low as $422.50 early today. Bitcoin has since recovered to $530 by the market close in China Wednesday evening. The Shanghai-based BTC China said they had to stop the trading, “for reasons we all know,” but said this decision will not affect any existing deposits and withdrawals.
Chinese authorities barred their mainstream financial institutions from trading Bitcoins less than two weeks ago. So far China is the only country where the government has addressed Bitcoin in this way, but in the last week there were many other countries that have started to vocalize the currency’s speculative nature. The European Banking Authority as well as Denmark, Norway, Australia and New Zealand have all expressed their concerns, but continue to accept trading.
Tuesday, the Danish Financial Supervisory Authority even raised a warning to traders that the virtual currency has a possibility to quickly change and fall to zero. The information put out by the Danish Authority was not likely news to Bitcoin traders as the coin has a history of sharp inclines and declines in its value. In November, the price of Bitcoin rose by nearly 500 percent.
Financial experts have been split on their ideas of the survival and longevity of Bitcoin. Federal Reserve Chairman, Alan Greenspan, was quoted as saying that it had “no intrinsic value.” Professors at Boston University also predicted the value of Bitcoin will fall to a low of $10 in 2014.
On the other side of the “Bitcoin” are experts such as the founder of Genesis Block, Greg Schvey. Schvey’s company is a research firm that follows digital currency such as Bitcoin. Genesis Block has followed Bitcoin from its historic beginnings and Schvey says that big fluctuations in the price happen all the time. What Schvey feels is that more and more people and companies are finding out about Bitcoin and starting to invest. In his research Schvey feels that Bitcoin is now stronger than it has ever been.
Other advocates appreciate the ups and downs of Bitcoin as it encourages trading and discourages any hoarding of the currency. Being that they are made in limited quantity, hoarding the coins has some saying that it cannot be considered an actual currency.
In the United States, officials have a cautious approach to the coin, but they do have an accepting attitude toward any virtual currency. The Treasury department will continue to allow virtual currencies as long as they operate and register as a money-transmitting operation.
The current largest collection of Bitcoins is now owned by the FBI. The federal agency recently seized more than 144,000 Bitcoins when they shut down an online drug marketplace. Previous to their latest seizure, the FBI had already confiscated another 30,000 coins from illegal online operations. If one was to compare the high price of Bitcoin in November to the price after the events in China today, the FBI’s hoard has been devalued by over a staggering $99 million. However, their worth as of Wednesday evening was still up at over $92 million.
Bitcoin will likely continue to fluctuate wildly with ups and downs in value for quite some time as many more outside influences and events come into play in the virtual currency’s future.
By Brent Matsalla