Does bitcoin's continuing rise signal digital currencies moving to the mainstream?
PUBLISHED: 06:15 13 December 2017 | UPDATED: 17:27 13 December 2017
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It is a word which has dominated financial markets for the past year, as famous as it is infamous: bitcoin.
The oldest and most well known of digital currencies, it has seen its value skyrocket since January from around $800 to $16,400.
After spending its formative years as the preserve of criminals and cyber-nuts, bitcoin is breaking on to the main stage in dramatic fashion.
It experienced a watershed moment this week, making its debut on the global futures market with a contract launched by the Chicago Board Options Exchange (CBOE).
But the volatility often associated with digital currencies was still on display on this traditional trading platform, with CBOE having to halt trading twice in the first 24 hours to curb sharp rises.
So is bitcoin ready to go mainstream – and how should businesses prepare themselves?
Mark Cook is a director at ApplinSkinner and digital marketing specialist who has traded in and run a business accepting cryptocurrencies since 2013. He believes there is still a “knowledge gap” around them.
In his previous e-commerce business he said he experienced an uptick in business after starting to accept cryptocurrencies.
After doing a talk to a Norfolk networking group on bitcoin earlier this year, Mr Cook realised the “huge amount of interest in cryptocurrencies” – but also the lack of information circulating about them.
“It was at this point we started proactively engaging with clients to help them understand the opportunities and what was involved in accepting cryptos,” he said.
“People, especially in this area, are not aware of how easy it is and how to manage the risk and volatility.”
ApplinSkinner, based in Norwich, now offers a service allowing e-commerce sites on platforms such as Wordpress and Shopify to accept cryptocurrencies like bitcoin.
The firm also provides training to help business owners understand how to accept, store and exchange bitcoin.
Mr Cook said: “People are naturally fearful of things they don’t understand. Everyone thinks it is dangerous and expensive to do so we want to let businesses locally know that this opportunity is here and that the rewards are higher than the risks.
“It is going to be relevant to businesses in the future and those who have adopted it early will be at an advantage.”
The volatility of bitcoin, and other cryptocurrencies, has been cited as a disincentive for accepting or investing in them thus far, but its recent upward trajectory could prove lucrative for those bold enough to ride the wave.
The bitcoin price broke $10,000 for the first time just a fortnight ago, fuelling talk of a bubble – but latecomers who backed the currency then have seen their investment grow by 65%.
For some, including many central bankers, its risks are hard to overlook.
Neil Garner, founder of payments technology firm Thyngs, believes we could be headed for another dotcom bubble, as the influx of opportunistic investors reaches a critical mass.
“I cannot help feeling the bubble will burst soon,” he said.
“A lot of investors are piling money into it because they think it is going to go further still, but your money would have been better spent in the early days when it was smaller.”
Mr Garner added that while bitcoin’s rapid growth was currently playing in its favour, it had a “shaky history”.
Richard Larner, Norwich office manager for investment managers Hargreave Hale, said the risks for private investors were still “off the Richter scale”.
“We are in very early stages of the development of cryptocurrencies. The question is, should it be dismissed as another potential bubble?” he said.
“People have to be careful when considering investing in them because when something is that volatile it is possible to incur very heavy losses. It is that old adage: ‘Don’t risk what you can’t afford to lose’.
“We have to be very careful when dealing in bitcoin, partly because there are so many ways to do it. It’s not just a question of buying the currency itself – there are different ways of investing in it.
“One thing that may trouble private investors is that it does not generate a flow of income. That has always been the case with gold as well. Your only return will be making capital gains.”
What is bitcoin?
Bitcoin is the first, and biggest, “cryptocurrency” – a decentralised tradeable currency which is created and held electronically.
Founded in 2008, it can only be used as a medium for exchange, and has stronger links with the dark economy than with legitimate transactions.
As it is not controlled by a central authority it gives a greater degree of privacy to investors and traders and is more resilient to censorship and corruption than “normal” currencies.
However it is also harder to regulate, earning it support from those who are not in favour of central banks as well as criminals who like the fact it is hard to trace transactions back to a physical person.
Bitcoins aren’t printed, like pounds or euros – they’re produced by people, and increasingly businesses.
2017 has been a roller-coaster for the currency, which has seen its value increase by more than 16 times in the last 12 months.
‘Starting my business would have been impossible without bitcoin’
Gift Off, an online business which accepts bitcoin as payment, credits the currency with its success.
The Norwich firm, which allows people to exchange bitcoin for gift cards for brands such as Amazon and Argos, is on course to turn over £11m this year, securing £2m in sales last month alone.
But founder Rusty Nash said problems in software development have caused fees for using the currency to rise, adding to his costs.
“They are due for some changes so within six months I think it will be back to where it was two years ago – fast and cheap,” he said.
“Creating this company would have been impossible without bitcoin. I am a firm believer in its underlying value and utility and the doors it can open.”
Mr Nash said he is not overly concerned about fluctuations in the currency as Gift Off tends to liquidate its bitcoin assets quickly after receiving them, including by supplying them to DVD and video game seller CeX.