Bitcoin: An Overview of the Cryptocurrency Market

Bitcoin was introduced as the first crypto-currency in January 2009 after an article by Satoshi Nakamoto presented the idea of the digital currency in November 2008 (Berentsen and Schar, 2018). Nakamoto wrote and posted a paper “Bitcoin: A Peer-to-Peer Electronic Cash System” that proposed a system for electronic transactions (Anderson, 2014). Nakamoto was the first to mine a block of bitcoins referred to as the “genesis block” with a reward of fifty bitcoins (Berentsen and Schar, 2018). Since then the mining and use of bitcoin has increased as a number of businesses including restaurants, retail stores, bars, travel companies among others allow for the purchase of their goods and services using bitcoin (Anderson, 2014).

How Bitcoin Is Affecting the Market and Regulations

Bitcoin is the oldest technology in the digital currency market and is regarded as the spearhead of this market. Today, the value of bitcoin is very high and it affects how business entities operate and the regulations that have been put into place. The market is heavily reliant on the bitcoin to a degree that a rush among investors to sell or purchase them leads to shifts in the market as it creates instability in prices and swings in valuations.

According to Anderson (2014) every payment system needs to be regulated in order to control how new monetary units are produced. However, the rise of the digital currency market occurred in an environment with minimum regulations. Abboushi (2017) explains that even as the interest in bitcoin and other cryptocurrencies has continued to increase, regulators and international actors have remained distanced from this market. In recent years, regulatory bodies are taking steps towards having a control of this market. Countries around the globe are introducing new regulations as they are worried about the activity and behavior that bitcoin could be enabling. 

Bitcoin Prices

Cypto-currencies have values that range from fractions of pennies to hundreds of dollars per coin (Kurihara and Fukushima, 2018). Kurihara and Fukushima (2018) state that bitcoin units have no central value hence its present price is determined based on the expectations about its future price. Its price has increased from a value of $0 in 2009 to a value of $6,405.86 for one bitcoin in September 25, 2018 (CoinDesk, Inc., 2018).

Discussion of Two Papers/Studies about Bitcoin Price Changing

Kurihara and Fukushima conducted a study “How Does Price of Bitcoin Volatility Change” to understand how the unstable prices of bitcoin change. Kurihara and Fukushima (2018) assert that bitcoin is a private monetary system that is not under the control of central banks or governments. Furthermore, it is not managed by any governing body which has placed the fluctuations of the bitcoin prices at unpredictable levels. Kurihara and Fukushima (2018) use the GARCH model to study the volatility of the data. The study found that there is a variance between long-term and short-term instability of bitcoin and dealers should remain aware of both aspects.

Suhail Abboushi prepared an overview of global virtual currencies that identifies bitcoin as the most popular digital currency operating without involvement of banks or other institutions. Abboushi (2017) states that in 2010 the price of bitcoin was under ten cents. These prices have continued to increase and at the time of the study bitcoin traded at above nine hundred dollars per unit. The prices of bitcoin went from $0.08 in 2010 to $14.31 in 2011, $6.79 in 2012, $74.56 in 2013, $629.91 in 2014, $269.64 in 2015, $754.68 in 2016, and $918.20 in 2017 (Abboushi, 2017). Abboushi (2017) conclude that prices and number of virtual currency will continue to grow particularly due to the emergency of newer applications and technologies.   

References

Abboushi, S. (2017). Global Virtual Currency–Brief Overview. Journal of Applied Business & Economics, 19(6), 10-18.

Anderson, T. A. (2014). Bitcoin—Is it just a fad? History, current status and future of the cyber-currency revolution. Journal of International Banking Law and Regulation, 29(7), 428-435.

Berentsen, A., & Schar, F. (2018). A short introduction to the world of cryptocurrencies. Federal Reserve Bank of St. Louis Review, First Quarter 2018, 100(1), 1-16.

CoinDesk, Inc. (2018). Bitcoin Price Index - Real-time Bitcoin Price Charts. Retrieved on September 25, 2018 from https://www.coindesk.com/price/.

Kurihara, Y., & Fukushima, A. (2018). How Does Price of Bitcoin Volatility Change?. International Research in Economics and Finance, 2(1), 8.