Recent Volatile Bitcoin Trends – Look to the Future for Stability
September has been an eventful month for the digital world. Volatile bitcoin trends have been rife with lots of factors playing a role. Bitcoin price dropped dramatically last week and resulted in mixed reactions from authorities, investors and speculators.
Cryptocurrency has been termed as a technology that causes disruption and one that does have a future but is only useful for “specific client needs”. Plus, despite the technology continuing to learn and grow, it can be attacked by government and officials at any time, evidenced by China deciding to ban bitcoin exchanges.
But what really is bitcoin?
Bitcoin was formed to provide people with an alternative currency, especially for those who felt unhappy using central banks and other monetary institutions. Where people felt alienated, marginalized and lied to, they found a safe haven in cryptocurrencies. Cryptocurrencies are after all, a byproduct of technologies built to provide efficient and suitable platforms for people.
Simply put, even a volatile bitcoin does not answer to any central bank and are completely decentralized. Supporters of bitcoin want the digitized money to become one that can be trusted wholly. They also want it to improve by putting together three main characteristics: exchanging bitcoins without using a central system, hedging and legal speculation, and storing wealth.
However, last week bitcoin price fluctuated so much so that some important points were raised. First and foremost, people are still scared to use and adopt cryptocurrencies since they are mostly presumed to be a fraud. Secondly, situations such as China’s ban on bitcoin exchanges proves that cryptocurrency is defenseless against any interference from the government. Lastly, the unpredictable price fluctuations such as the drop from 40 percent immediately followed by a rise up to 25 percent is a reminder of bitcoin’s volatile nature.
These points push the new technology under scrutiny and brings about more questions. Mohamed A. El-Erian, chief economic adviser at Allianz SE, writes: “They also point to the risk that, as difficult as it is to value the currency confidently, part of this year’s impressive run-up in the price of bitcoins may well assume an adoption rate that exceeds what is feasible — and desirable — in the shorter term.”
What about its future?
Cryptocurrencies have a long waiting period before they can form a bigger and stronger user community. As for officials and regulators, they still need more time to understand the costs, benefits, pros and cons of this technology before coming to a firm conclusion. However, bitcoin – and other cryptocurrencies – are here to stay and will not be eliminated due to the current challenges.
What is happening now could very well be a process of currency transformation, but it still is at its premature stage which means that patience and time is required before it can turn into ‘credible money’.
El-Erian also writes that in the present, “the operational dimensions of cryptocurrencies will involve primarily speculative activities, cannibalizing at the margin the investor base for precious metals, and meeting the demand of those looking, both for legal and for illegal reasons, for a payment system that operates outside the view and reach of monetary authorities.”
Will it replace traditional monetary systems in central banks? According to El-Erian, probably not. But he speculates that it will overcome volatility, criticism and become a more credible, stable and regulated system adopted by central banks.