Digital currency Bitcoin may have taken a serious hit after skyrocketing towards a $20,000 value in late 2017 yet cryptocurrency experts are predicting a bright future lies ahead.
Billionaire investor Warren Buffett knows a thing or two about making bucket loads of cash, and is one of those who have doused the flames of investors predicting big returns by claiming the world’s leading cryptocurrency is doomed to fail.
The chairman and chief executive of multi-billion-dollar conglomerate Berkshire Hathaway insists “cryptocurrencies will almost certainly come to a bad ending”.
That has been hotly disputed at the World Government Summit in Dubai from those locked into the industry who are predicting the market cap could double December’s high point of around $600 billion in 2018.
Bitcoin has halved in value in just weeks, currently trading at about US$8,500 (Dh31,000).
“Warren Buffett is good at renting furniture, but this is a very different system,” said Nick Spanos, founder of Bitcoin Centre, New York City.
“Bitcoin is the goose that laid the golden cryptocurrency, and because of its success last year it has helped the emergence of hundreds of smaller currencies.
“We should believe in bitcoin more than the currencies offered by central banks. History shows that something that is scarce, like bitcoin, has value.
“Cryptocurrency is the people’s declaration of monetary independence."
Bitcoin is a virtual currency ‘mined’ by supercomputers that crack a complex string of digital code to earn coins that are then traded on exchanges.
A recent ‘gold rush’ saw the price of bitcoin spike from about $9,000 in early November to almost $20,000 by mid-December.
That was largely due to panic buying and widespread media reports fuelling cryptocurrency interest, according to Jesse Powell, founder and chief executive of Kraken Bitcoin Exchange.
“There was a lot of excitement and media attention that drew in a lot of new investors, particularly in Japan that resulted in the positive move in the market,” he said.
“Consumers need to look after themselves, as they can’t rely on any particular machine or regulation to protect them from market volatility.”
The recent introduction of Tether, a cryptocurrency tied to the US dollar, has been cited as a possible contributing factor to recent soaring bitcoin inflation, and possible market manipulation.
Along with fraud and money laundering, it is a genuine concern for financial regulators.
If the currency isn't really linked to actual dollars — and it was propping up bitcoin prices — then that would signal that bitcoin and other currencies aren't worth what speculators and investors assume.
Tether’s creators claim it is backed by one dollar for each token issued.
However, an anonymous report claims bitcoin’s real value is closer to $4,500 rather than the current market value of about $8,500, without that support.
“Tether is facilitating new investors into the market, and if it’s true that it is marked by dollars, then there are now real dollars in the crypto market,” said Mr Powell.
“I think we are going to see an acceleration in cryptocurrency growth this year, and that will continue exponentially towards a trillion-dollar market.”
Regulators in the US are focused on a lack of transparency in who's buying cryptocurrencies and their related coins, whilst China intends to block domestic access to online trading platforms and mobile apps.
“You cannot regulate bitcoin, but countries can regulate themselves out of the market by bringing in their own restrictions,” Mr Spanos said.
“Bitcoin is not a bubble; it is the pin that will pop the regulatory financial system’s bubble.”
Kian Lon Wong, president of NEM.io — a blockchain technology to help secure online assets, said although the recent buying frenzy may have abated, the only way is up for cryptos.
“Last year there was a growing interest in Asia helping fuel the big increase in prices,” he said.
“We are still in the early stage of the industry and the adopter curve.
“What we do know is that Blockchain, the technology behind many of these currencies, is here to stay.
“We are on a steep learning curve, but the only way is up for bitcoin.”
It is thought around a third of the 17 million bitcoins in circulation have been lost, whilst another third are owned by ‘whales’ looking to control the market and the rest are owned by retail consumers.
Lawrence Wintermeyere, co-founder and principal of financial advisers Ellipsis, said the flourish of new investors took the market to unprecedented levels, with cryptocurrencies valued at twice that of gold.
“2017 was an extraordinary year for cryptocurrencies and the market has become flooded with speculators,” he said.
“Retail investors need to be aware of the risks, and the biggest concern is that many new investors are not.
“I don’t think too many people will be interested if the fund managers lose out, but it will be a concern if the retail investors lose their investments if the value of Bitcoin crashes.”
What is bitcoin?
Bitcoin is the first and largest decentralized digital currency that was invented by an anonymous founder known as Satoshi Nakamoto.
The currency is mined by supercomputers using huge volumes of electricity to earn coins as reward for cracking complex puzzles.
Cryptocurrency is unregulated and operates without the support or governance of a central bank or administrator.
Owners of coins can trade amongst themselves, without the need of traditional banking methods.
Transactions are recorded in a public distributed ledger called blockchain, with coins used in exchange for goods and services at more than 100,000 registered global businesses.
Coins can be stored in an online wallet, with estimates of more than 6 million unique users, although some have had coins stolen by hackers.
Several major banks have banned the purchase of cryptocurrencies by credit card.
Head of the International Monetary Fund Christine Lagarde has said international crypto regulation is inevitable and necessary.