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Published On: Wed, Dec 20th, 2017

Bitcoin Mania grip investors

  • Analysts predict bullish run of the new money

By Obinna Ezugwu

At the front of Cassava cafe, a restaurant in Chicago, US, there is an unmistakable bold notification: “We now accept bitcoin.” It has been doing so since 2014.

But who wouldn’t? Bitcoin is the fastest appreciating currency globally. Last week the unveiling of bitcoin futures may prove to be the game-change in its meteoric rise. Yet, it is not a currency, at least as you know it. It is a ‘mystery’ crypto-currency or digital currency that has turned paupers into millionaires, defied economics and some of its most celebrated professors and theorists. But it remains a risk, some would say a bubble. Nonetheless, others would argue that every investment is a risk, in fact everything in life.

A bubble, bitcoin was expected to burst a year ago… two years ago, perhaps even in 2009 when it started and was selling for as little as N1500. Every bubble will burst sooner or later and bitcoin was not expected to be any different. However, for nearly eight years the bitcoin bubble has refused to burst. Its acceptance is growing rapidly and so has its value.

Staying away from bitcoin was an easy choice to make in 2015, even 2016. It was just, and perhaps still is, too risky an investment – a very volatile currency. But guess what, if you did invest a few hundreds of thousands in 2015, you would be with worth more than a few millions today. If you had put a few millions in 2016, you would be worth hundreds of millions now.

It is simple. For the most part of 2015, one bitcoin was worth about N120,000. Later in 2016, it came to around N400,000. But today, in December 2017, the price of one bitcoin revolves around N6.2million, (specifically between $17, 700 and $18,000). Yet, it is not slowing down.

But it is a very volatile currency, rising and falling in value within minutes, and therein lies both its weakness and strength. It could make or break you over the short term depending on your ability to read its movements. But over the long term, there is a certain guarantee of heavy reward, if it doesn’t burst, because the rate of overall appreciation overtime is phenomenal.

For instance, while the leap from N120,000 in 2015 to N6.2 million in 2017 represent a phenomenal feat, there has been back and forth movements within the period. While, for example, bitcoin was for the greater part of 2016, sold at N400,000, by November that same year, it had come down to as low as N216,000. In February this year, the price still stood low at around N340,000. But guess what? It is N6.2million in December 2017, sometimes even N6.5nillion.

The strength and sustainability of the coin depends on acceptability. This acceptability has grown in leaps and bounds. Hundreds of online retailers have adopted it as a means of payment. Same as many roadside shops especially in many Asian countries and the United States, and as the buzz grows, an increasing number of companies are eager to get in on the game. The result: Rapid rise in value.

Bitcoin’s market capitalisation is presently over $287.6 billion, more than twice that of Goldman Sachs ($89.2 billion). It is now bigger than Mr. Warren Buffett, Boeing and the economy of New Zealand!

Last week, Cryptocurrencies in general achieved a historic milestone as their combined market caps leaped above the $500 billion mark on the heels of an altcoin rally led by the ethereum and ripple prices. And just when you thought you have heard it all, here comes the big one. A new bitcoin-linked financial product: bitcoin futures have been unveiled.

On Sunday last week, CBOE Global Markets, a Chicago-based exchange group, became the first exchange to launch bitcoin futures; a product that will allow investors to bet on the coin’s future price and could open the door to wider-participation in the market by retail investors and institutions.

A future is a type of financial product that enables two parties to exchange an asset at a specified price at an agreed date in the future. CBOE’s bitcoin futures allow investors to bet on the future price of the coin. The product trades under the ticker XBT.

On Monday, hours after CBOE started trade on bitcoin, the price pushed above $17,000 on CoinDesk’s Bitcoin Price Index (BPI) to hit a new all-time high. The price of bitcoin jumped over $1,000 in minutes. And just three days prior on Friday, bitcoin had one of its wildest sessions ever: On Coinbase’s GDAX exchange, prices zoomed up to almost $20,000 from $16,000 in only about 90 minutes, before crashing back down.

However, trading has gone relatively smoothly since then. At the time of writing this report, bitcoin was $18,000.

Nonetheless, there is still a measure of skepticism around bitcoin. As far as the big intentional banks are concerned, many say they won’t clear trades for the bitcoin futures. JPMorgan Citigroup and Societe Generale which are some of the largest futures brokers did not participate in the market on Sunday.

Volatility is a feature that has made bitcoin unappealing to many big businesses, but it is not the greatest risk involved. Hacking remains the gravest danger. Many have lost millions of dollars to hackers who hack and steal bitcoin from wallets.

Overall, the coin remains largely a mystery. As Robert Reed, a writer with Chicago Tribune put it: “If you ask me to stand on one leg and quickly describe what bitcoin is, I’d fall down.”

In Nigeria, it has defied industry men. In 2016, around July, we did a report on the bitcoin and had cause to speak to Dr. Frank Udemba Jacobs, President, Manufacturers Association of Nigeria (MAN) and here is what he had to say:

“Government should discourage the use of bitcoin in the country because it will only bastardize the naira, besides it is risky since it is not regulated. It is those who want quick money that are patronising the currency, but eventually their fingers will get burnt.”

But as those trading on the coin, instead of getting their hands burnt so far, have become made men. We caught up with Dr Jacobs again last week. This time, he admits the coin has performed beyond his imagination and that he was very surprised at its movement.

Although he still maintained it could have negative implications on the Naira, he opted to board his flight when asked how precisely.

Within the same period last year, the Security and Exchange Commission (SEC), in a message posted on its website, warned Nigerians against patronising the bitcoin and other similar ones such as swisscoin and onecoin as vehicles for investment.

The commission stressed that: “Given that these instruments and the persons, companies or entities that promote them have neither been authorised, nor have any guidelines/regulations developed for them by any regulatory authorities in Nigeria, there is no protection available to users or investors in these virtual currencies from financial losses if the virtual if the virtual currencies fail or companies promoting them go out of business.”

Not many people who heeded SEC’s advice would be glad they did. However, if you are thinking about diving headlong into bitcoin investment, Jordan Belfort, the “Wolf” of US Wall Street has words of caution: “The caving in of bitcoin is almost a guarantee.”

Of late, other people have leveraged on the success of bitcoin to create other cryptocurrencies such a bitbumb, swisscoin and many others. This, Belfort says will contribute in killing off bitcoin.

“It’s a bubble for sure,” he told CNN. “The futures is the new stage. The next stage is now that you will see these skyrockets, maybe a short squeeze. It may go even higher, but eventually though, it is going to cave in. It is almost a guarantee.”

But what exactly is bitcoin?

Bitcoins are basically intangible digital codes that let the user exchange money in a different way than with conventional banking systems. To use bitcoin, an individual would have to first create what is called a bitcoin wallet, similar to bank account using a platform known as blockchain (https://blockchain.info), a shared public ledger on which the entire bitcoin network relies. All confirmed transactions are included in the block chain. This way, bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the blockchain are enforced with cryptography.

The wallet is a combination of letters and numbers and serves similar purpose as account number for conventional banking. It is through this wallet that the individual pays (sends) or gets paid (receives) bitcoin. Like in real life, the individual’s wallet must be secured to avoid theft.

Bitcoin makes it possible to transfer value anywhere in a very easy way and it allows the individual user to be in control of of his “money” in a sense.

In using bitcoin, however, there are important things to note. First being that, as highlighted earlier, bitcoin is a very volatile currency. Its’ price unpredictably increases or decreases over short periods of time due to its young economy, novel nature, and sometimes illiquid markets.

The origin

Bitcoins were first mined in 2009 by an individual who adopted the name Satoshi Nakamoto and claimed to be a 37-year-old male who lived in Japan. But some speculated he was unlikely to be Japanese due to his use of perfect English and his bitcoin software not being documented or labelled in Japanese.

There had been unending debate among officials of different countries with regards to whether bitcoin legally qualify as money. In September 2015, a federal judge in Manhattan, US while delivering a judgment affirmed that indeed bitcoin qualified as money, at least under the country’s federal anti-money laundering statute.

The ruling which was delivered by U.S. District Judge, Alison Nathan came in the criminal case over the 2014 cyber attack on J.P. Morgan Chase & Co. according to media reports.

The judge was said to have rejected a bid by Anthony Murgio to dismiss two charges related to his alleged operation of Coin.mx, which prosecutors have called an unlicensed bitcoin exchange based on his reading of a federal law that makes it a crime to operate an unlicensed money-transmitting business.

Mr. Murgio’s lawyers had argued that counts in the indictment should be dismissed because the law shouldn’t apply to bitcoins. However, since the said law did not define “money” but said it includes “funds”, the question for Judge Nathan boiled down to whether the meaning of “funds” encompassed bitcoins.

Defining funds as “pecuniary resources generally accepted as a medium of exchange or a means of payment,” Judge Nathan wrote that bitcoins qualified as funds “within the plain meaning of that term” and thus counts as a form of money under the law.

The judgment marked a defining moment in the evolution of bitcoin.



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