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May 5, 2013
 

Has the Bubble Burst on Bitcoins?

Has the Bubble Burst on Bitcoins?

In their short span of existence, Bitcoins have definitely had an impact on the world of investing. Since their launch in 2009, bitcoins have gained value after online merchants began accepting them for payment. This led to websites that have opened up in order to allow the trading of bitcoins. The past month has seen huge fluctuations in the value of bitcoins. In early April bitcoins were valued at around $130 a coin. A week later it had doubled before crashing down to less than $100. Leading up to may it slowly stabilized at just over $100. Does this stabilized value mean that the currency is here to stay? That’s hard to say.

Who Regulates Bitcoins?

If this is a real currency, who regulates the trading of bitcoins? The answer to that is that no one directly regulates it. There is no governments or industry that back bitcoins. It’s regulated by the individuals that trade and use it. After online merchants started accepting bitcoins, websites were created to let people trade bitcoins on an open market exchange. These sites track the demand of bitcoins in order to determine their value.

The Number of Bitcoins is Limited

The inventor of bitcions, Satoshi Nakamoto, designed them to have a limit. Bitcoins are found by mining the computer network that Nakamoto set up. He also set the network up so that the distribution of bitcoins is limited to a specific amount, every four years the number that can be mined will decrease. The way the network works, all available bitcoins will be mined by 2140. By this time, the total amount of bitcoins available for circulation will be 21 million. This could hurt or help the bitcoin trading industry.

Can Bitcoins Last Until 2140?

Bitcoins may stick around, or the entire bitcoin market could completely crash. With no one regulating and no large group backing bitcoins, they are an unstable currency that relies solely on the continued trade of small investors. It is still too risky of a market for large scale investors to get involved. When you add in the fact that there are no banks that back bitcoins or even recognize its existence as a currency, it becomes riskier still.

The majority of bitcoin trading takes place on websites that are designed solely for the purpose of bitcoin trading. They operate as an exchange the same way that stock exchange trading websites operate. A problem that many of these bitcoin exchange websites have faced is the closing of their accounts by the banks that they use. Even though these are legitimate online operations, the banks can close their accounts without notice. Yet another reason that bitcoin trading is a risky investment for many.

In order for bitcoins to survive, they need to be recognized by financial institutions as a legitimate form of currency. If that does not occur, all it is going to take for the bitcoin market to crash is a little bit of fear amont investors. A small amount of fear in it’s value can go a long way towards a complete crash.

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