PwC: Want to understand bitcoin? Buy it
The value of bitcoin has reached a record high twice since the beginning of 2017, and this price upturn is undeniably a healthy sign.
In addition to a groundswell of support for the bitcoin in Australia and Canada, Pricewaterhouse Coopers (PwC), one of the global Big Four auditors, included a recommendation to buy bitcoin in its careers advice to students.
Will market uncertainty drive bitcoin higher?
Bitcoin reached a record high on February 24. The cryptocurrency surged on buying from Chinese and Venezuelan investors, rising to US$1,201.81(Coindisk data) at one point.
The cryptocurrency has remained on a rollercoaster: the previous high was recorded on January 4, but bitcoin subsequently plunged to a low of US$776.98 on January 11, after which it started to climb again.
Many expert observers, including Wedbush Securities analyst Gil Luria, who has been following bitcoin since its early days, believe the rise in bitcoin is mainly being driven by a loss of faith in the world’s legal currencies and by regulation.
Venezuela is an easy example to understand. Its economy, already weakened by the fall in the oil price, has been further undermined by a postponement of the introduction of a new higher-denomination banknote in December. Inflation has reputedly reached 500%. This would hardly make it surprising if more Venezuelans now regard a cryptocurrency as safer than their national currency. Meanwhile, ever tightening capital and currency regulation in China, is forcing investors to use cryptocurrency, which lies outside the scope of such regulation.
This suggests that the increased uncertainty in these markets will drive bitcoin higher, but is this really the case?
Cryptocurrency an unpredictable “living organism”
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Market fluctuation is both bitcoin’s greatest strength and its greatest weakness. Like exchange rates for traditional currencies, the value of bitcoin reacts – almost slavishly – to every tiny event.
It rose in response to events that increased uncertainty, such as the vote for Brexit and the election of the Trump administration, and fell on reports that the bitcoin exchange had been hacked. The nosedive in January was triggered by growing fears that the Chinese government would strengthen its scrutiny of bitcoin exchanges.
As a new currency with limited use, bitcoin is in many senses a “living organism” that is hard to predict. Even bitcoin specialists, with all their knowledge and experience in the field, seem to find it hard to project how it will move, with their forecasts for its 2017 value ranging widely from US$800 to US$35,000.
This makes it risky to attempt to explain bitcoin with the simple rule that it rises on market uncertainty.
Prime Minister Muscat advocates creating mechanisms rather than resistance
It is often pointed out that this unpredictable volatility is a bar to bitcoin being adopted as a mainstream currency. Also, different regulatory standards in different countries are a further hindrance to its wider adoption.
Whilst the spread of bitcoin is being increasingly actively promoted in such places as Australia and Canada, the goverments of China, Thailand, South Korea and Singapore are proposing to tighten bitcoin regulation. The European Central Bank (ECB) called on the European Union (EU) to impose tough regulation on cryptocurrencies in October 2016 in a bid to nip their growth in the bud before they impinge on the ECB’s ability to control the supply of funds.
By contrast, Maltese Prime Minister Joseph Muscat said at a Centre for European Policy Studies (CEPS) event held in Brussels on February 23 that the rise of cryptocurrencies cannot be stopped. Whilst criticising moves to tighten regulation in Europe, he recommended that, “rather than resist, European regulators should innovate and create mechanisms in which to regulate cryptocurrencies, in order to harness their potential and better protect consumers.” If it can succeed in making positive use of cryptocurrencies, Europe, which has been experiencing rising socioeconomic pressures, could become a centre for innovation. The same logic would apply to China and Singapore.
PwC’s advice
Propelled by the mania for blockchain, a growing number of companies are demonstrating an understanding of cryptocurrencies.
An event to discuss blockchain in the capital markets was held at New York’s Fordham University on February 23, attended by the Big Four global auditing firms Pricewaterhouse Coopers (PwC), Deloitte, Ernst and Young (EY) and KPMG, and leading blockchain startup ConsenSys.
Subhankar Sinha, a PwC fintech director advised students aiming for a career in fintech that the best way to get involved in the industry is to buy and hold bitcoin and ethereum with their own money.
Whilst we have not reached the stage of absolute support for cryptocurrencies and blockchain, we are certainly seeing positive moves in that direction. The growth of societal recognition should lay the foundations for the future of bitcoin.
(By ZUU)
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