Crypto: Despite the risks, is Bitcoin becoming mainstream?
2020 was a record-breaking year for Bitcoin, and this year may not be any different. Despite its spectacular drop last week, the crypto frenzy is far from over. Banks, well-known business leaders and investors all seem to jump on the digital currency bandwagon.
Bitcoin has come a long way since it first launched in 2009, when – in its first year alone – individual coins jumped in value from USD 0.0008 to USD 0.08.
In recent months, Bitcoin hit an all-time record high helped by PayPal, Mastercard, Elon Musk, BNY Mellon’s adoption and the influx of institutional funds, which has given Bitcoin some credibility and legitimacy.
Interest among retail investors is also on the rise and, last month, the currency was given a major boost when the US Office of the Comptroller of the Currency stated that national banks can use blockchain networks and Stablecoins for payments, further legitimising digital currencies.
‘Mother of all bubbles’
However, meteoric rises and falls in value still seem to be the norm with Bank of America to speculate recently that the current bitcoin run is “the mother of all bubbles.”
Morever, the UK’s financial regulator, the FCA, issued an unusual warning on crypto investments, saying that “if consumers invest in these types of product, they should be prepared to lose all of their money.”
“The news is not all bad,” commented John Hunter, business development director at Zedra Guernsey, a wealth and fund solution provider.
“Last month J.P. Morgan’s prediction proved to point he right way ahead based on last days developments,” Hunter told City PM this evening.
The banking giant projected the price of bitcoin could hit $146,000 as more big firms embrace it as an alternative to gold.
The regulatory interest and bank analyses show Bitcoin is increasingly drifting into the mainstream domain, with more and more non-crypto focused traders zooming in on the currency.
“For long-term investors who went in early or when bitcoin had a low valuation, bitcoin can be a lucrative investment. Experienced investors who have significant capital available to invest and who can afford to take big risks in the hope of big rewards are all enjoying the Bitcoin ride,” Hunter noted.
Risk
While the risks surrounding Bitcoin are widely accepted, investor concern often centres around the fact that fiat money is exchanged for a virtual asset and vice versa.
Bitcoin ownership is recorded in ledgers but the relatively new nature of cryptocurrencies, the fact that all transactions are digital, and the lack of regulatory oversight all play a part, Hunter pointed out.
“In essence, those investing in Bitcoin or cashing out their investment into fiat money want to protect their interests. The point at which fiat cash and a cryptocurrency meet can feel like a natural weak point,” he said.
Therefore, so-called escrow agreements are increasingly popular for bitcoin transactions as they present a win-win for all parties.
“Traditional escrow agreements are used to protect the interests of the seller and the vendor and it’s the same for Bitcoin transactions,” Hunter explained.
Escrow becomes especially relevant when the value of Bitcoin increases significantly and more cash needs to be deposited to purchase Bitcoin, he concluded, “or when there is a liquidation that translates to a significant amount of fiat money.”