The Bitcoin is one of several crypto currencies being used throughout the world. Its popularity has been questioned since its introduction just 18 months ago and its price has zoomed up as high as $1000 and fallen as low as $250. Has it now become another safe haven currency to be used during financial upheavals across the globe?
With all the talk focused on the euro and the dollar these last few months, there has been scant mention of the Bitcoin, that illusive digital currency that has investors constantly questioning regarding its actual legitimacy or place in the scheme of today’s financial markets.
For those not in the know, the Bitcoin is a type of virtual currency whose operation is regulated and managed electronically instead of by a central authority. This makes the Bitcoin one of the few decentralized currencies.
Bitcoins are not issued in print or coin form like dollars or most other currencies. They are created digitally and can be accessed only by machines that use specific software to solve the associated mathematical equations. Like other crypto currencies that have been introduced over the last few years, the Bitcoin is not backed by a state or an equivalent traditional authority and is based on cryptographic protocols.
History of the Bitcoin
The question of how the Bitcoin came into being remains cloudy. A popular version of its origin refers to a ‘ghost figure’ named Satoshi Nakmoto who back in 2008 introduced the currency and issued a finite number of Bitcoins --21 million to be exact. This theory has never been firmly confirmed but no one has yet come forward with any other explanation. The circulation of the Bitcoin is predicted to last until 2140. It is debatable whether this a hypothetical expiration date or an actual end to the Bitcoin’s acceptance as a currency.
The Bitcoin took off like a rocket when it was introduced in 2009 and hit $1000 against the dollar by December 2013. It has dropped precipitously since then bouncing around the $270-300 range and standing at $272 on July 18th.
The vagueness of the Bitcoin continues but despite its unregulated status, the popularity of its use has increased. New York was the first state in the union to recognize the Bitcoin in January 2014 and several states have since followed. Still, its acceptance across America has been slow and measured.
The story is not much different in Europe where the Bitcoin has had limited recognition. One of the major uncertainties facing Bitcoins and other alternative digital currencies is the regulatory environment in which they move and this may explain the reluctance of most European countries to accept it as a bona fide currency. There are few clear regulations governing the Bitcoin, especially in areas such as taxes, accounting and anti-money laundering, with some countries more lenient on these issues than others.
But this may be changing. The United Kingdom has already implemented a strategy regarding the Bitcoin, exempting it from VAT and treating it as any other foreign currency. The UK policy towards companies doing business in foreign currency is to allow them to accept any currency they like but their VAT must be calculated in the national currency. When it comes to the Bitcoin, however, instead of charging an extra fee each time a Bitcoin is received, the government will get its share at the other end, whenever the Bitcoin is spent.
In fact, the issue of the EU and its future strategy towards the Bitcoin has been under discussion for some time now and will be brought to a head when the European Court of Justice Advocate General meets today and decides on whether or not the Eurozone will charge value-added tax on the sale of Bitcoins.
Should the verdict be in favor of the imposition of the VAT, it would cause quite a stir among the many Bitcoin dealers who would be required to impose the fee on each of their clients’ transactions and in doing so reduce the competitiveness of the crypto currency which up until now has benefited from limited remittance fees.
Back in the News
Discussion of the Bitcoin took a back seat during the recent Greek financial crisis while the euro and the U.S. dollar fought it out. But it is back in the news of late and it is worth having a second look and reviewing its position on the global financial scene.
According to coindesk.com, one of the major Bitcoin and digital currency dealers, the price of the Bitcoin has been on a 12-month losing streak up until the end of June but with a sudden leap upwards, it came in 8% higher for the second quarter of the year.
Many analysts are contributing this price jump to the financial situations in Greece and China.
Was the Bitcoin suddenly regarded by investors and the Greek people as a safe haven, an alternative to the euro and its questionable stability in the event of a Grexit? And although some small businesses have been accepting Bitcoins as payment over the last few years, could it be that more and more Greeks are only now becoming aware of this crypto currency and its financial possibilities? The answers to these queries will only be determined in the next few months when Greece’s economic condition stabilizes and the position of the euro strengthens. The status of the Bitcoin on the Greek island will then either sink or swim.
The situation in China differs, however. Analysts point to the a renewed interest in the Bitcoin as a result of the country’s recently implemented trading restrictions and the instability in Chinese foreign markets. Bitcoin market watchers point to November 2013 when Chinese buying was a major driver during Bitcoin’s 500% price spike.
Focus is expected to revert back to Europe in the next few weeks, but in the meantime, analysts are recommending the Bitcoin as a short-term buying opportunity.