[December 2017] Bitcoin offers revolutionary alternative to global trade

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Alexander Massoud ’20 & Adam Wenkoff ’18

Bitcoin, a cryptocurrency and global electronic payment system, has received worldwide attention for its upward trend in value, reaching a market capitalization of nearly $280 billion on Dec. 14.

The intangible digital currency, released in January of 2009 by Satoshi Nakamoto, an unknown individual who has been credited with the creation of Bitcoin, significantly altered the basis of global trade. Individuals using Bitcoin can reference an electronic ledger, which tracks all transactions made between parties, through the blockchain technology the currency offers.

“Bitcoin is benefiting greatly right now from all the press it’s getting,” Jack Sharkey ’18 says. “As the cryptocurrency market continues to grow, more and more people hear about it. And the first thing anyone knows or hears about cryptocurrency is Bitcoin.”
The main appeal of Bitcoin is that it is completely decentralized from any government or bank. Bitcoin’s value is not affected by the volatility of the world’s economies, and as a result, has become an item in which many wish to invest their assets.

However, Rohan Goswami ’18 believes that this complete dependency on consumer demand is going to negatively impact Bitcoin in the long-run.

“The reality is that Bitcoin is a remarkably volatile commodity that ultimately depends on how much people want it,” Goswami said. “Ultimately what you’re going to see in the next three to four years is a sharp depreciation in Bitcoin’s value as the market comes to the understanding that it’s remarkably overvalued.”

Financial experts are struggling to figure out how to value a Bitcoin. In 2009, the value of one Bitcoin was just under one cent. As of Dec. 14, 2017 the value hovered around $17 thousand, fluctuating by as much as 5 percent daily.
Nevertheless, there are those who have already profited greatly from investing in the cryptocurrency.

Cameron Winklevoss and Tyler Winklevoss, sons of Saugatuck Rowing Club owner Howard Winklevoss, became the world’s first official Bitcoin billionaires on Dec. 4. When they invested $11 million of their $65 million Facebook payout in Bitcoin, the currency was valued at $120 per coin. They now own over $1 billion worth of Bitcoin.

“If Bitcoin is a better gold or seen as a type of gold-like asset, then it could be in the trillions on a market cap. [Cameron and I] do feel those are very real possibilities,” Tyler told CNN Money.

Math teacher Robert Papp agrees with this notion that the Bitcoin industry could see a tremendous increase in value in the future.

“I definitely think [the market capitalization] could go into the trillions,” Papp said. “Currencies serve two main purposes: a medium of exchange and store of value.”
Papp also commented on gold being the “traditional store of value” behind currencies. According to Papp, the remarkable difference in market capitalization, that is approximately $6.25 trillion, is no reason Bitcoin can’t “rival gold, and even become the next gold.”

However, there are people like Goswami who are hesitant to invest in Bitcoin.
“My father works for an investment bank in Zurich, and has always told me to be wary of bubbles and trendy investments. Bitcoin is both of those,” Goswami said.

Stephen Roach, Yale University senior fellow and former Morgan Stanley Chief Economist, is also skeptical about Bitcoin, citing how Bitcoin’s success is likely to bust.
“This is a dangerous speculative bubble by any shadow or stretch of the imagination,” Roach told CNBC. “I’ve never seen a chart of a security where the price really has a vertical pattern to it. And Bitcoin is the most vertical of any pattern I’ve ever seen in my career.”

Regardless of these doubts about longevity and volatile nature of Bitcoin, its prolific growth in recent years has been unprecedented. Bitcoin is the most valuable cryptocurrency ever. Millions of people today are investing their money into Bitcoin, and Sharkey believes that it is blazing the trail for other cryptocurrencies to take off, too.

“There are other coins (altcoins) that are younger and in the earlier development stage that have better technology,” Sharkey said. “They learned from Bitcoin’s past mistakes and have the potential to outperform them in the next three to 10 years. However, Bitcoin is currently the front-runner by a mile and won’t lose its lead for a long time.”