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Everything's Coming Up Bitcoin as Value Spikes

In recent weeks, serious people have been taking a look not only at bitcoins, but at the so-called blockchain technology that drives the cryptocurrency.

by John Dyer
Nov 5 2015, 3:55pm

Photo via Wikicommons

Bitcoins are back — at least for now. 

The value of the cryptocurrency reached nearly $500 early on November 5, according to CoinDesk's bitcoin Price Index.  The price was hovering around $400 by press time on Thursday morning US Eastern Time. 

That's less than the peak bitcoin value of almost $1,150 per bitcoin two years ago, after which it began a decline that saw bitcoin value drop to $177 in January 2015. 

The higher price is a significant uptick in a downward trend that has bedeviled the cryptocurrency since Mt. Gox, a shuttered Tokyo-based bitcoin exchange, filed for bankruptcy in February 2014. 

The difference between then and now is a measure of the force that leads anyone to believe money is worth anything: confidence.

Mt. Gox filed for insolvency when its operators lost track of 850,000 bitcoins that were worth around $450 million at the time. In September, Japanese prosecutors charged the exchange's former chief executive, Frenchman Mark Karpeles, of embezzling $2.7 million. Who took the rest is still a mystery. 

Needless to say, losing money in cyberspace isn't the best way to attract investors. 

But in recent weeks, serious people have been looking closely at not only at bitcoins, but at the so-called blockchain technology that drives the cryptocurrency. 

Related: A Nasdaq for Bitcoin: VICE News Interviews the Winklevoss Twins About the Future of Cryptocurrency

Blockchain technology creates a permanent, unchangeable record online that transcribes bitcoin transactions executed by people identified only by account addresses. 

"You don't need a subpoena for a blockchain. Anybody can see it at anytime," said bitcoin Foundation Executive Director Bruce Fenton. "But to find the people behind the entries, the subpoena doesn't do the trick. It's not information that is necessarily known by anyone." 

Banks in particular are seeing the value of the technology. 

The Economist recently published a story about blockchain, dubbing the technology the "trust machine" underpinning bitcoin that has tongues wagging from Wall Street to the City in London about its security and efficiency. 

Bloomberg also recently quoted Wedbush Securities analyst Gil Luria on the promise of the technology. "It is becoming increasingly clear to banks and financial institutions that bitcoin and blockchain technology will become an important part of the future delivery of financial services," Luria said.

Tech elites are getting into the act. Cameron and Tyler Winklevoss — the twin brothers who claim Mark Zuckerberg stole their idea for Facebook while they were his classmates at Harvard University — launched bitcoin exchange last month.

Governments are also legitimating bitcoins. Recently, British consultancy Magister Advisors said bitcoins could become the world's sixth-largest reserve currency in 15 years, rivaling the Swiss franc or the Australian dollar. The European Court of Justice recently ruled that bitcoins should be treated like traditional money. And New York State released regulations for bitcoin businesses this past summer.

Related: Former Bitcoin Exchange CEO Charged With Embezzlement in Japan

The attention has helped drive up the value of bitcoins, said Massachusetts Institute of Technology Business Professor Christian Catalini. "Every time bitcoins are featured in the news, the price seems to rally," Catalini told VICE News. "There is more attention, people get excited and there is a bit of a herding effect."

In the meantime, other forces are probably driving up the value of bitcoins, too. Venture capitalists have poured around $1 billion into bitcoin-affiliated firms in recent years, said Fenton.

China's economic slump has also led citizens in that country to move around $669 billion out of the country in search of better returns, too, according to Bloomberg. Fenton and Catalini said some of that money has almost certainly gone into bitcoin exchanges. Since the total value of bitcoins is around only $7 billion, said Fenton, even a small influx of Chinese capital would cause a spike in bitcoin's value.

Of course, spikes in any financial assets should prompt responsible minds to be on watch for a bubble, said Catalini.

"We have to remember it's not a currency backed by a government," he said. "There is a small share that is being used for illegal markets. There is a share that is maybe being used in countries where the local currencies are volatile or people are using it as an alternative. And then there is a lot of speculation."

Follow John Dyer on Twitter: @johnjdyerjr

Photo via Wikicommons