Surprising many, after dragging its feet the past few months, Bitcoin suddenly surged in value by almost 100% against the US Dollar and peaked at over $8,000. Some experts have said this trend is possibly the end of the cryptocurrency bear market, while others are chalking it up to a temporary and unexplainable bullish surge.
On May 19, Bitcoin was pumped with over $18 billion in capital as a response to the unexpected increase. Bitcoin Cash, Binance Coin, and Dash were trading at 7% higher than usual and EOS, Litecoin, Stellar, IOTA, Monero, and Etherum were trading at 4% higher.
This is the second time this year that Bitcoin has made a mysterious sharp uptick since its lowest value of $3,150 in December 2018.
In April, Bitcoin briefly hovered over $5,000, an almost 20% or $950 increase in value in minutes.
James Turk, banker-turned-founder of online investment platform Goldmoney, tweeted a graph showing Bitcoin’s increase in April after a four-month low.
What is Bitcoin?
Bitcoin is a kind of cryptocurrency that has a reputation for being volatile.
The IMF explains that cryptocurrency like Bitcoin, Litecoin, and Ripple are digital currencies that can be created through cryptography and mathematics. People who want to ‘mine’ cryptocurrency have to solve complex algorithm with powerful computers and servers.
Bitcoin exists only on virtual networks. When people use Bitcoin, their transactions are recorded anonymously in a permanent digital ledger called blockchain.
Reuters says, “Blockchain works by providing a shared record of data held by a network of individual computers rather than a single party. Its supporters say this makes it hard to tamper with, thereby ensuring a secure way to track goods along with the supply chain.”
While cryptocurrency removes middlemen, is decentralised, and can be accessed through mobile apps, it is poorly regulated and risky to invest it because its value fluctuates greatly.
Coin Central says its value fluctuates as much as 20% every 48 hours. Bitcoin owners can even lose all their money if they forget the password to their digital wallets.
RBI, too, has warned against cryptocurrencies, saying their value is unpredictable. In 2018, it even issued a circular saying that the country does not recognise cryptocurrencies as legal tender.
Regardless of its volatile nature, tech companies like Facebook have been researching more into how cryptocurrency can be used. Facebook is working on developing cryptocurrency for WhatsApp in India.
The Commerce Ministry also launched a new blockchain-based e-commerce marketplace that is a pilot project for Indian coffee farmers. On this blockchain processor, Indian farmers can directly sell their produce to exporters and roasters.
France and Ethiopia also use blockchain processors for coffee sales.
Possible explanations for Bitcoin’s surge
When Bitcoin’s valued jumped in April, experts suggested that less stringent regulations in the US might be the reason.
The US Securities and Exchange Commission was reviewing applications that would create a separate exchange traded fund for Bitcoin.
New York’s Department of Financial Services also just approved Tagomi Trading LLC’s bid for a cryptocurrency trading licence, saying it wanted to give consumers more choice.
Top financial institutions, such as JPMorgan and Goldman Sachs, have also embraced cryptocurrency.
JPMorgan is launching its own cryptocurrency called JPM Coin that it will use to settle payments via a blockchain. However, JPMorgan has taken a very cautious stock of such digital currencies.
CNN reported JPMorgan’s response to the surge this week: “Over the past few days, the actual price has moved sharply over marginal cost. The divergence between actual and intrinsic values carries some echoes of the spike high in late 2017, and at the time, this divergence was resolved mostly by a reduction in actual prices.”
CNN added that people need not fall prey to JPMorgan’s “fear mongering” because the cryptocurrency is “proving to be a solid alternative investment” in the background of the trade war between the US and China, fluctuating oil prices, and lacklustre gains from gold investments.
This is probably why Bitcoin seems to be in a bullish phase, because investors are gaining confidence in the cryptocurrency and expecting its value to hold steady for a while or keep increasing.
Galaxy Digital CEO Michael Novogratz has also predicted that Bitcoin will likely hit $10,000 in the coming months and its current value is a “stall point”.
Rhea Arora is a Staff Writer at Qrius.