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19 January 2018

Bitcoin volatility to continue as China clamps down on cryptocurrency

As Chinese authorities start to clamp down on cryptocurrency trading, Thomas Dawson, Investment Manager, looks at its implications for Bitcoin.

“In little over 24 hours, the price of Bitcoin moved from trading over USD$13,000 to USD $10,968 on Tuesday 16th January. In mid-December, we saw a peak of over USD $19,000. To put this into greater perspective, if we look back a year it was below USD$900. In essence, this means we have seen quite a bull market for Bitcoin, and just over a month of a bear one.  

“Despite the news hype surrounding Bitcoin, the options to actually spend digital tokens remains very limited. High-profile names such as Microsoft have made headlines for accepting Bitcoins, however, in the fine print, the terms are quite limited to games, movies and apps. The main way to spend bitcoins therefore is for holders to visit an exchange and find someone else willing to buy their Bitcoins for actual Pounds Sterling, US Dollars or Euros. The limited possible end depositories for bitcoins differentiates it and other cryptocurrencies from conventional currencies, and this requirement to buy or sell at a price determined by others means the pricing of them will remain quite volatile indefinitely.

“Ironically, digital currencies have significant carbon footprints, with estimates for 2018 putting power consumption for mining cryptocurrencies at 0.6% of the total global electricity generation. In addition, they tend to encourage speculation, facilitate money laundering and assist with tax evasion.

“Chinese authorities are clamping down on Bitcoin trading, indeed all cryptocurrencies, and this has roiled markets for Bitcoin and other digital tokens for the past month or so. China is trying to meet increasing energy demands whilst reducing pollution, and carefully monitors its own exchange rate and international monetary flows. Bitcoin has the potential to undermine these objectives, hence the crackdown. 

“Until last year, China was the most active market for Bitcoin trading, and is home to some of the biggest Bitcoin miners. It is not beyond the realms of reason that, by China turning its back on cryptocurrencies, the volatility in Bitcoin value is set to last.”

Please remember that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. This article is for information only and does not constitute a recommendation to invest in the investments mentioned. Please note, Bitcoin cannot be purchased directly through Redmayne Bentley.
 
 
 
Bitcoin volatility to continue as China clamps down on cryptocurrency
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