Sunday Musings – Bitcoin @ 12000, who does it help?

Last week Bitcoin surged to 10,000 USD per Bitcoin and then breached that to move to 11,000 USD within a few hours. This crypto asset has gone up by over 5x on the back of some extreme exuberance in the BTC trading fraternity coming on the back of CFTC allowing the listing of BTC on a few exchanges. What would strike any seasoned trader from the chart below though is the last set of spikes came on the back of some pretty shallow volumes.

The question therefore is who does this price hike help?

The obvious beneficiaries are the early investors of “hodlers” as they are termed. Irrespective of whether they entered at a sub 100 USD level or a sub 3000 USD level, most hodlers have seen a sizeable increase in portfolio values.

Barring these speculators, the price surge helps almost no one. A reasonable number of new age businesses had starting accepting BTC as payment for their goods and services (primarily digital goods), however I would believe that their risk functions would be having some discussions with the business teams to try and understand ways in which the volatility risk such as this can be mitigated. This would also deter additional adopters to jump into this payment system immediately

Investors (individual and institutional) are getting a guidance for BTC investment that says “invest only as much as you are ready to completely lose”. This would act as a limitation to the amount of non speculative money that would need to flow into the asset.

Why would it matter to a trading business like ours? Crypto currency as a payment mechanism has the promise of reducing the cost of transaction substantially, while allowing payments through channels that are more secure than existing payment gateways. They also have a ready use case for being clubbed with smart contracts and thus make the complete supply chain documentation seamless, manual intervention free and cost effective. The current volatility in BTC and other crypto assets, would delay the adoption of such systems and hence delay the benefits that accrue to our sector.

To close, the only people smiling right now are the speculators, hence this current abnormal surge in BTC pricing helps no one except them.

 

Reference

https://data.bitcoinity.org/markets/price_volume/6m/USD?t=lb&vu=curr
https://99bitcoins.com/who-accepts-bitcoins-payment-companies-stores-take-bitcoins/
http://insidebitcoins.com/news/who-uses-bitcoin-the-answer-may-surprise-you/24901

Arijit Sen,
Global Head – Strategy,
Swiss Singapore Overseas Enterprises

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