Unless you’ve been living under a rock, you’ll have likely heard about 2017’s most divisive topic. Cryptocurrencies. Talks of returns in the double or even triple digits have set traders’ tongues wagging, resulting in a significant increase of products available. Even Paris Hilton has jumped in on the act, recently endorsing a US coin offering.
With financial websites awash with news about cryptocurrencies, this report will focus on the currency that started it all, Bitcoin. We’ll answer questions such as what it is, what it can be used for, how you can trade it and whether it is a feasible investment. By the end of the report, you’ll be able to decide whether it’s boom or bust.
What is Bitcoin and what is it used for?
Bitcoin is the best-known example of a cryptocurrency, a virtual and de-centralised currency whose transactions are performed without the need for a central issuing authority – a bank, in most cases. In 2009, a programmer under the pseudonym Satoshi Nakamoto published the specification and proof of what became Bitcoin. Since then, it has become the world’s most popular cryptocurrency, inspiring others such as Ethereum and Ripple.
To obtain one, you would need to ‘mine’ a Bitcoin by authenticating a series of bitcoin transactions that are then recorded onto a central ‘blockchain’. Once you have completed these, and they have been confirmed by a peer-evaluated system, you are then rewarded with a number of Bitcoins. While this was once a relatively simple process, the number of authentications that need to be completed for a single block has increased exponentially.
While physical Bitcoins have limited use today – mainly for online transactions – traders can speculate its value in a similar way to regular currencies, a popular trade that has seen Bitcoin rally as much as 300% this year.
Why has Bitcoin increased in value so much this year and will it continue?
The 2017 cryptocurrency rally has come about after a surge in fundraisings called Initial Coin Offerings, or ICOs. While an IPO raises money through public listing, most commonly an ICO raises money for developers by offering tokens in return for a future stake in the currency being developed. So far ICOs have raised $1.8bn in 2017.
However, investors are seemingly falling out of love with Bitcoin, if only a little. China has ruled ICOs illegal, while JP Morgan’s CEO has very publicly claimed that Bitcoin is a fraud, resulting in the crypto poster child falling up to 30% from its highs. With ICO investigations in the both UK and US ongoing, investors are spooked. However, as blockchain technology becomes increasingly popular in mainstream finance, with the world’s largest financial institutions dedicating vast resources to research it, Bitcoin could play a key role in this new world.
Over the page, we analyse the investment opportunities in Bitcoin, including just how you can trade it.