Sunday, February 11, 2018

Bitcoin in crisis: An unprecedented bubble ? :


Inescapable financial phenomenon of recent months, Bitcoin knows a spectacular valuation evaluated at more than 1000% over the past year. This exponential growth fascinates as much as it worries. This international infatuation is increasingly timed by the mistrust of renowned economists, who go so far as to speak of a financial bubble.

Bitcoin: genesis of a virtual currency
Bitcoin is an electronic money whose quantity in circulation is voluntarily limited. Each unit is the result of solving a hyper complex mathematical problem, for which there are 21 million possibilities. 11 million Bitcoins are discovered to date and each solution becomes more and more difficult to discover. It is therefore a rare currency by design, whose value is based on the confrontation between supply and demand.
Its exceptional present value is explained by the explosion and the massification of demand.

Bitcoin, digital gold?
Unlike the Euro or the Dollar, Bitcoin is not a traditional currency. It can not provide a function of exchange, reserve of value or unit of measurement. Like gold, Bitcoin has become a safe haven, in which one invests hoping for its rise. It's a rational bubble.

Rarity, currency of speculation, the market of Bitcoin is often compared to that of gold. However, this comparison is quickly limited: its rarity is fictitious, nothing prevents its creators in the long term to increase the number of units. Unlike gold, Bitcoin is not institutionally legitimized by central banks or international organizations.

Virtual currency, real technological risk?
Resulting from the solution to a complex mathematical equation, the production of Bitcoin implies for the "minors" the use of sophisticated energy-consuming equipment which implies an exponential consumption of electricity. Its price must therefore be revalued upwards to ensure profitability. If its valuation no longer covered the costs of its production, the feeling of confidence could be reversed and cause a massive fall in Bitcoin.
The arrival of a new, more efficient cryptocurrency could therefore be a threat to Bitcoin. Faced with the current craze, some economists and even the Bank of France warn against a risk of capital loss.

The rise of cryptocurrency, linked to the technological innovation of the Blockchain, is nevertheless part of the digital trend that is gaining the banking sector now: virtualization and transaction security.
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