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Wednesday, 11 January 2017

Bitcoin Gains Validity as Digital Gold After Brexit Vote


Hard-working Britons with their life savings stashed in British pounds woke up about 8 percent poorer after their country voted to leave the European Union.

Meanwhile, bitcoin investors were shielded from the Brexit news: They enjoyed an almost 9 percent jump in the value of their holdings.
It's the type of event that bitcoin enthusiasts, many in the technology industry, have anticipated because of growing political and economic instability in many regions of the globe. Meanwhile, legions of sceptics have criticized the cryptocurrency as a high-risk bet on an unprotected and unregulated alternative to money.

"Bitcoin is effectively becoming digital gold," said Ashvin Bachireddy, co-founder and general partner at Geodesic Capital, a Silicon Valley venture capital firm that backed bitcoin start-up 21 Inc. "You can continue to see further validation of bitcoin as something detached from a centralized government that allows people who work to preserve wealth in a secure way."
Not that Bachireddy — or any credible bitcoin investor — is recommending selling all your pounds, euros or dollars in favour of the cryptocurrency. There is tremendous volatility involved, and the currency still has limitations in how and where it can be used.

The price of a bitcoin surged as much as 8.7 percent on the Friday after the referendum. It came to $680.19, according to CoinDesk. That followed the Brexit vote, which sent the pound spiralling downward against the U.S. dollar to $1.32, the lowest since 1985.
However, earlier that week, Hong Kong-based bitcoin exchange Bitfinex was closed for a few hours because of "networking issues". The issues were fixed on the same day. But during that time there was a very high volatility.
Bitcoin is not for the faint hearted. It started the year around $430, sank below $360 in mid-January, jumped to $768 in mid-June and then plunged to $603 a week later.
Speculators can drive the price up and down in ways that would be terribly unsettling for people with significant bitcoin investments.
"I'm not a big proponent of bitcoin as a currency replacement," said Steve Waterhouse, a partner at San Francisco-based Pantera Capital, a bitcoin investment firm that started in 2013. 
Waterhouse, a native of England, said bitcoin is most effectively used for business-related transactions and money transfers that would take several days to clear in the traditional financial world but can be done digitally with bitcoin on the same day.
"If nothing else looks safe, you could see people looking to something completely different as a safe haven," Waterhouse said. "It doesn't follow the ups and downs of regular markets."
Jesse Powell, CEO of digital asset exchange Kraken, said that the volume of bitcoin trading on his company's site doubled in the 24 hours following the Brexit vote. Since June 10, there's been a five-fold increase in bitcoin to euro trading as of late Friday.
"There's an advantage to having a currency that isn't political, isn't tied to a government and not subject to these kinds of things happening," said Powell, whose San Francisco-based start-up enables the exchange of national currencies into cryptocurrencies. "It's purely governed by math."
But bitcoin has its own variables. The size of the market expands through a process called mining, whereby coders use software to solve complex math problems and are rewarded with bitcoins. Every four years, the number of bitcoins rewarded is cut in half.
The next halving takes place in July, when miners will receive 12.5 coins every 10 minutes, down from 25 today. So one reason for the recent spike is likely the view that bitcoin supply will be more restricted. Three-quarters of the total supply of bitcoins have been mined.
"I wouldn't tell anybody to put their life saving into bitcoin because that could just as easily be wiped out," said Powell. "Think about it in terms of diversifying your portfolio. If you have investments in gold or an index, maybe think about bitcoin or cryptocurrency as an asset class you want to have some money in."
Bitcoin bulls expect that the currency will eventually have greater utility in the marketplace and move from being a savings and investment tool into transactions. Businesses that already take bitcoin include Expedia, Dell, Microsoft and dating site OkCupid, but they typically require the use of a bitcoin wallet like Coinbase.
Unlike gold, which only works as an alternative asset for investment purposes, the idea with bitcoin is that it's also easily spendable on everything from groceries to money transfers.
"Most people are buying it for investment or stored value," said Chris Larsen, founder and CEO of Ripple, which is developing a global financial network for digital settlement. "They're not paying their rent. It's the beginning."

Reference: Ari Levy

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