With bitcoin trading at more than $11,500 recently, the cryptocurrency has attracted the attention of traders and investors worldwide. Because bitcoin was trading at $960.79 Jan. 1 of this year, the interest is not a surprise.
That said, plenty of experts are urging caution, especially for inexperienced would-be traders and investors. Bitcoin is not for the faint of heart or wallet.
Bitcoin became mainstream recently when Chicago-based CME Group and the Chicago Board Options Exchange obtained approval from the Commodity Futures Trading Commission to begin trading bitcoin.
The Nasdaq Stock Market said it would start a bitcoin futures site on its commodities trading platform in 2018. Major financial firms including Cantor Fitzgerald and Goldman Sachs are discussing trading related to bitcoin. Others, including JPMorgan Chase Chairman Jamie Dimon along with investors such as Warren Buffett and Bill Miller have also weighed in with their opinions.
Bitcoin is a form of cryptocurrency, which is itself an electronic form of currency that has no physical presence. There are no actual coins or paper bitcoin bills. Instead, bitcoin is built on a technology called block-chain.
There are, in fact more than 1,300 cryptocurrencies listed on CoinMarketCap.com with a total market capitalization of more than $341 billion. Bitcoin is simply the most well-known and widely traded form of cryptocurrency.
Supply And Demand
There are about 16.7 million bitcoin (coins) in circulation. Supply and demand is driving up the price. Recent valuation of this non-physical, ghost currency sat at $189 billion early this week. The floor value of bitcoin is zero. It does not pay interest. The only value it has is what the market gives it.
The market and the community that supports the currency believes it has value. There is no government behind it. No gold. No silver. No central bank. The whole idea behind bitcoin was to eliminate all those things. In many respects that is exactly what has happened.
Invest With Caution
Bitcoin is highly speculative, experimental and digital. It only has value because enough people say it has value. There is nearly universal agreement among experts that nobody should invest capital they can’t afford to lose in bitcoin.
Bitcoin has limited use as an actual currency when it comes to making purchases. The number of sellers who accept bitcoin is growing but still quite small. Another problem with the currency is that it has become popular as a way for drug dealers and terrorists to make transactions that cannot be traced.
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Assuming the shady side and other uncertainties surrounding bitcoin get resolved, cryptocurrency is easy to transfer between two parties. Fees are minimal making transfers much less expensive than, say wire transfers.
The use of blockchain makes bitcoin potentially important in future transactions by financial institutions like JPMorgan Chase due to the low costs of payment processing. Although the threat of hacking is minimal, it is not non-existent. Therein lies a major problem. Since bitcoin is virtual, your balance could be wiped out by a single computer crash if you don’t have a backup copy.