If you haven’t already heard of bitcoins, they are a digital currency that was created in 2008 and launched in 2009. It’s been four years since that launch and bitcoins have seen a wide shift from a relatively unknown internet project to a real digital currency. Currently, the value of bitcoins is determined in an open market based on demand by the people that collect it, but will we ever see a speculative market for this strange online currency? For this to happen there needs to be a real long term interest in Bitcoins.
Where Does Bitcoins Value Come From?
Bitcoins are found by using computers to mine for them inside a large computer network setup by the creator of the currency. It didn’t take long for this activity to gain actual value. Eventually online merchants began accepting bitcoins as payment for goods and services, giving them value. Once this started, the whole world of bitcoins started to quickly shift into a digital currency. The value of the bitcoins is determined by tracking how much merchants and people are willing to accept them in relation to the dollar. Meaning, the more value placed on them by merchants, the more value they have. In a speculative market, things are a bit different.
How a Speculative Market Could Help the Bitcoin
Speculators work on fluctuations in goods. The acts of speculators directly affect the market they operate in. Take the foreign exchange market for example, speculators acquire a currency while it is considered a risk and look for short term gains before dumping it for another currency. This helps the market because the speculators are assuming the risk that investors may not be willing to take. All of that adds up to speculators assisting in stabilizing a market. With speculators working in the bitcoin market, there could be more credibility in the currency making it easier for bitcoins to stand the test of time.
Why Speculators Are Waiting
Bitcoins have only been around for four years and have only had a significant value for the past three years. We have seen a growth in their value, but many think this could be short lived. It’s possible for the bitcoin bubble to burst sending the entire value into a tailspin. Additionally, bitcoins are not backed by any government or monetary regulating industry. This makes the world of bitcoins wildly unstable; their value could crash in a matter of minutes. Though, the people currently trading in bitcoins do not want this to happen, part of the appeal for them is that there is no regulating industry or centralized bank.
In order for speculators to enter this market, they need to be able to analyze all of the ups and downs in value. Perhaps some are waiting to see if it survives after the bubble bursts. Speculators won’t start jumping on board until there is a little more security in bitcoins value, which might not ever happen without a large group backing it.