A surge in the price of the cryptocurrency known as bitcoin has fuelled concerns about a price bubble. The phenomenon has hogged the limelight this week, in the international press, at the international conference Consensus 2017 and in dedicated industry blogs.
It is easy to see why. Father and son duo Don and Alex Tapscott forecast in the Huffington Post in 2016 that the bitcoin price would reach $2,000 to $3,000 by the end of 2017.
CoinDesk data show that in fact the price reached $2291.4775 on 23 May compared with $1,248.2175 on 23 April. At the time of writing (16.44 UK time on 24 May) it had climbed still further and reached $2,417.57
Price correction approaching?
Is a price correction approaching? The blockchain.com blog cites price analyst Josh Olszewicz drawing similarities between recent trends and the rally and the bubble of late 2013.
History is no certain guide to the future but sometimes it is all there is as guidance. Spotting the signs of a bubble before its first has proved mostly difficult down the centuries.
Investors should note that what goes up, history tells us again and again, can also go down. As one market mantra puts it, it is better to miss the last 5% of a market rally than catch the first 20% of a correction. Another says: don't invest in anything you don't understand.
Reasons behind the surge
- Japan’s growing adoption
- Japan's legalisation of Bitcoin confers legitimacy
- Japan passes China to become world's largest bitcoin market
The altcoin market may also be another supporting price driver, suggests the blockchain.com blog. Bitcoin is the leading digital asset of its kind, and consequently, it is also common practice to use it for purchasing altcoins.
As altcoins like litecoin, which saw the activation of Segregated Witness (segwit) earlier this month, garner more interest, bitcoin network activity may also be seeing a resulting jump from users buying bitcoin to purchase altcoins.
Delegates at the third annual Bitcoin and Blockchain Conference connected recently in Prague, capital of Czechia (previously known as the Czech Republic). A short time before the conference came news that European e-retailer Alza has started accepting bitcoin as payment. Alza is the largest online retailer in the Czech Republic and Slovakia.
Next came Consensus
Following the Prague conference came CoinDesk’s annual block chain technology summit, Consensus 2017, held in New York City this week. Arguably the most attention-grabbing session starred Abigail Johnson.
The chair and CEO of Fidelity Investments went public with her enthusiasm for blockchain technology, bitcoin, ethereum and what the future holds for both open-source, public blockchains and more private alternatives.
The in-house summary tells of how in her talk, Johnson discussed the future scenario where blockchain technologies have thrived. She thinks this has a "reasonable chance" of coming to pass despite the technology's relative newness.
Elsewhere, she argued how collaboration is needed to overcome this unfamiliarity with the technology and help it reach its "full potential".
"This transformation could complement lots of other innovative areas that we see emerging – including the Internet of Things and Artificial Intelligence,” she said. “These platforms shouldn't develop in a vacuum," she said.
Johnson also revealed information about her company's partners on its journey, naming blockchain startup Axoni, investment firm Boost VC and university initiatives based out of MIT, University College London and Cornell.
Experiment to learn
To date, Johnson explained that Fidelity Labs, its internal research and development division has also set up experiments for bitcoin micropayments. It has even run mining operations to learn more about the technology.
Further, she said that Fidelity will be taking some conservative steps to expose Fidelity's customers more to the industry, announcing that customers will soon be able to see Coinbase holdings on Fidelity.com.
She said this feature is already available to employees who own digital currencies available through the startup's services.
Fundamental change ahead
Said Johnson. “Blockchain technology isn't just a more efficient way to settle securities – it will fundamentally change market structures – and maybe even the architecture of the internet itself."
Johnson further detailed Fidelity's research strategy for blockchain, noting the education difficulties that have thus far made adoption difficult.
She said that, at this stage, most potential users attempt to compare it to older technologies, or they simply never adopt due to the time and patience it takes to master new concepts such as having passwords for money.
Forgot my password
"Some users treated the recovery phrase like a password. They also expected to be able to click a 'Forgot My Password' button if they ever lost it – definitely not the ideal mental model," she said.
Johnson also spoke to the larger ideological changes that have happened as the world has begun to better understand open, public blockchain technology, and how that is reshaping how industries are seeking to apply it to business models.
"If you are looking for bitcoin to beat Visa at the point-of-sale today, you are going to be disappointed," she remarked.
Johnson's talk also covered other problems in how blockchain technology is being applied in the enterprise – specifically, regulation, scalability and privacy.
"Regulators will go through the same growing pains. And, in order for this technology to reach its true potential, we need solutions that protect customer interests," she said.
Notably, Johnson also addressed that her passion for open-source blockchain technologies is also hitting governance roadblocks that limit their utility for enterprises.
"Companies that build products on these platforms don’t have clarity about the future path they might take – or how to influence these communities," she said.
She cautioned that traditional finance hasn't quite figured it out either. Control is also an issue for private networks. The industry will need to work to understand the risks associated with who controls key features of these systems, she stated.