Emergence of Bitcoin in explained in Introduction to Blockchain blog. It is a secured online system, for direct payment from one party to another without an intermediary, such as banks, etc. Bitcoin uses peer-to-peer technology to operate, with no central authorities or administrators. Managing transactions and the issuing of Bitcoins is carried out collectively by the network of nodes, in most secured, but complex manner. Bitcoin is open-source network system. The entire transaction ledger is visible to public, except the identities of transacting parties are encrypted. Its design is public, nobody owns or controls this cryptocurrency and everyone can participate in transactions.
New Bitcoins enter circulation after a complex process called “mining”. It is also a critical component of the maintenance and development of the Bitcoin Blockchain ledger. Mining process is solving an extremely complex mathematical puzzle. It requires sophisticated computer hardware, which in turn requires huge energy.
This makes mining process painstaking, costly and sporadically rewarding. There were times, when mining cost was more than market price of Bitcoin. However, Bitcoin survived through those times. Somehow, it has a magnetic appeal for traders and many marquee investors including Winklevoss Brothers, Elon Musk and many other celebrities. Even large investment bankers are recommending Bitcoin in portfolio of their HNI customers. It has reminiscence with California Gold Rush of 1849.
Bitcoin prices rose from US$ 200 in 2013 to US$ 64000 in 2021. A staggering 32000% gain on an investment made in late 2013. Significant growth of Bitcoin price in US$, makes the BTC/USD pair quite popular among traders and investors.
Roller Coaster Ride of Bitcoin prices
From 2013, till better part 2020, Bitcoin prices were driven by market forces. All through these years, it had a roller coaster ride. Wise believe that it is because Bitcoin doesn’t have any underlying asset.
- Rise from sub US$ 200 in late 2013 to US$ 1100 in 2014.
- Then back to US$ 200 in early 2015.
- That point on, it started rising exponentially to US$ 13000 in Dec-2017.
- Then a fall to sub US$ 4000 levels in early 2019.
- Again rise till US$ 12000 in Mid-2019.
- Then a fall to US $ 6000 levels in Feb-2020.
- Within a year, it had a meteoric rise from those level to above US$ 60000 in Feb-2021.
With emergence of Elon Musk on Bitcoin stage, prices started going northwards, with each Tweet of Elon Musk supporting it. Even Tesla invested in Bitcoin. In early 2021, he announced that people could buy Tesla with Bitcoin. This excited traders more, taking the Bitcoin prices to US$ 64000.
However, last week, there was a sudden realization for Elon Musk that, Bitcoin is harming environment. He further announced that Tesla will no longer accept Bitcoin. U-turn on the 3 month old stand. Many believed that he and Tesla would have dumped Bitcoin. Hence, prices of Bitcoin tanked to below US$ 43000.
However, he later today clarified that Tesla hasn’t sold any Bitcoin. Now, price movements are linked directly to Tweets of Elon Musk. Much during Trump era the stock markets moved with the Trump’s Tweets.
Bitcoin is a roller coaster ride. Only thing markets need some excuse for that price movement. Sometimes, demand-supply, sometimes electricity consumption, now Elon Musk and Tesla. Nobody knows, what will drive Bitcoin prices in future.
All through these years, I had been sceptic of Bitcoin and Cryptocurrencies as whole. However, I am a strong believer of its underlying Blockchain technology. It has a great promise, in many use-cases of real world business environment, across verticals.