Bitcoin came into its own this year. The digital currency — which was created nearly nine years ago — became a highflying investment vehicle, prompting much discussion about its existence, how to capitalize on its rise and the mania surrounding cryptocurrency. As 2017 comes to a close, we decided to look at some major events and themes (both good and bad) for bitcoin.
This is the most obvious theme of the year — the digital currency's astronomical rise. On the first day of 2017, bitcoin was valued at $973, according to the cryptocurrency tracker coinmarketcap.com. Then in March the cryptocurrency for the first time surpassed the value of one ounce of gold at $1,235. Just seven months later, bitcoin reached an all-time high of $5,856, in October, bringing its market capitalization above that of major financial players Goldman Sachs and Morgan Stanley. And as of Friday morning, the virtual currency is worth more than 15 times the amount it started off at the beginning of the year, at $14,670.
Experts say the rise in bitcoin's value has prompted swelling public interest, converting excitement into greater investment and, in turn, higher prices.
“Everyone is talking about it,” said Angela Walch, a professor at St. Mary’s University School of Law and a research fellow at the UCL Centre for Blockchain Technologies. “In Starbucks, everyone is talking about it. At Christmas everyone is talking about it. They are not talking about it in any other way than the value has increased so much.”
Christian Catalini, a professor and founder of MIT’s Cryptoeconomics Lab said widespread news coverage has led to a rush to buy bitcoin. “The fear of missing out has been the leitmotif of the year,” Catalini said. “People hear about the price of bitcoin increasing and increasing, and when that happens, the price goes up. You've seen this dance of enthusiasm and hype building.”
Now, the meteoric rise wasn't without major drops throughout the year. Just last week the digital currency saw a decline of 30 percent in a single day before recovering some, highlighting its volatile nature. And this brings us to the next theme we saw this year:
Many risky moves were made
Bitcoin is largely unregulated, and it is not issued by a government or controlled through a centralized financial institution. Its value can swing drastically in days or even hours.
“It’s important to remember these are highly speculative assets,” Catalini said. “They are highly volatile. These are experiments. Bitcoin is a massive experiment, and there are many ways that the experiment can go wrong. People should consider this as a form of gambling.”
But that hasn't stopped people from making risky moves to cash in on bitcoin's rising value. Some investors have been so eager that they've spent thousands of dollars on their credit cards to purchase bitcoin, said Joseph Borg, president of the North American Securities Administrators Association, an organization devoted to investor protection. Others have even borrowed tens of thousands of dollars through an equity line of credit on their mortgage, he said.
“The mania is continuing because there are still folks who have no clue what it is,” he said. “I can't tell you if this bubble is going to break at $20,000, $120,000 or $220,000. I don't know. But I don't want to be the one holding the bag when it does break.”
Businesses even renamed themselves to capitalize on the hype
Hoping to seize on the bitcoin frenzy, some businesses have even changed their names to include the word “blockchain,” the technology that drives the virtual currency. Last week, the beverage company Long Island Iced Tea said that it was renaming itself Long Blockchain. Soon after, its stock price tripled. And when a British company named On-line PLC announced that it would change its name to On-line Blockchain PLC, its shares jumped by almost 400 percent, according to Bloomberg News.
“Blockchain and other names associated with the cryptocurrency world have been used for marketing for a while,” Walch said, noting their appeal to venture capitalists. “Put blockchain and PowerPoint together and VCs will throw money at you. What we have seen is this has become laughable.”
Major thefts and losses
This year, cryptocurrency investors also suffered through major thefts and distressing mishaps. In early December, hackers stole more than $70 million worth of bitcoin from NiceHash, a marketplace for generating virtual currencies through complex mathematical calculations. But digital heists weren't the only way cryptocurrency investors were stripped of their money.
Some have lost small fortunes by their very own hands. Harrowing tales have cropped up recently detailing how people have lost or forgot their log-in credentials to access their bitcoin, prompting some to hire hypnotists, enlist benevolent hackers and even endeavor to rummage through mountains of trash to get their bitcoin back.
Bitcoin gets regulated a little more
Earlier this month, an independent U.S. government agency gave the green light for Chicago-based CME Group and the Chicago Board Options Exchange to begin trading bitcoin futures — contracts that allow investors to buy and sell assets at a predetermined price at a certain point in the future.
The contracts will be subject to oversight by the U.S. Commodities Futures Trading Commission. Before trading began, the exchanges self certified that the products complied with industry rules and pledged to help the CFTC monitor the underlying market for bitcoin, according to Bloomberg.
In Australia and Japan, bitcoin and other cryptocurrency markets came under some government supervision this year, as officials there instituted anti-money-laundering regulations. Most recently, on Thursday, the government of South Korea announced that cryptocurrency exchanges would be prevented from creating new trading accounts, unless they agree to new restrictions. Under the rules, the government would have the ability to halt trading and to shutter exchanges.
If this year was one of rediscovery and acceleration for bitcoin, as Catalini put it, next year may be defined by further development and transformation, he said. As bitcoin moves closer to mainstream applications, Catalini sees new forms of centralization taking hold, such as the rise in popularity and influence of cryptocurrency exchanges, because consumers tend to prefer products that are convenient and accessible. He also envisions other experiments in applying blockchain technology beyond cryptocurrency. “The space is maturing," he said, “and that also means more pressure on bitcoin core developers and open-source developers to really get this technology and scale it.”