by Joseph Young
Bobby Lee, CEO of BTCC, the world’s oldest and largest bitcoin exchange, has stated in an interview that Bitcoin has created a new asset class. The digital currency successfully eliminated the necessity of fiat and the exponential growth of bitcoin’s user base increased the likability of a cashless society. However, the People’s Bank of China has intervened on January 6 with a warning on volatility, jawboning bitcoin markets to a floor of $880.
Bitcoin Progressing Toward Store of Value Status
Since the introduction of Bitcoin in 2008, the cryptocurrency has served its user base as a commodity. Its high volatility rate and price fluctuation made it difficult for traditional investors and merchants to adopt the digital currency.
As time passed, like Vinny Lingham noted in his recent report entitled “Bitcoin: Commodity, Store of Value or Digital Currency?” an increasing number of people began to see bitcoin as a store of value. In other words, an asset or a currency that can be saved and traded in the future without the possibility of perishment.
Significant improvements and enhancements in the global bitcoin exchange market and industry regarding infrastructure and trading ecosystem allowed bitcoin to demonstrate substantially high liquidity with stable international exchange rates. Moreover, as the market cap of bitcoin grew, its volatility rate declined, providing some stability to investors and traders.
It was a matter of time before traditional investors, and high-profile traders began to alter their stance and viewpoint on bitcoin, as it transformed from a commodity to a store of value. Investors purchased bitcoin to avoid economic uncertainty and protect their wealth from tightening regulations.
In the midst of converting assets and cash into bitcoin, people also started to realize bitcoin’s crucial role as the backbone of the global financial system. It is providing individuals in countries like India, China, and Venezuela that are struggling to deal with severe economic and financial crisis a viable method of transacting and payment settlement.
And thus, more individuals and businesses continuously developed awareness on bitcoin’s vast potential and vital role in replacing existing monetary systems and financial networks.
In an interview, BTCC CEO Bobby Lee stated:
"We are seeing the aftermath of zero interest rates run amok. So bitcoin is a healthy reminder that we don't have to hold on to dollars or renminbi, which is subject to capital controls and loss of purchasing power. Rather it's a new asset class.”
One of the reasons experts and analysts such as Lee describe bitcoin as a new asset class and not as a currency just yet is because of bitcoin’s volatility. While bitcoin’s current volatility stemming from the exponential increase in value is proving to be beneficial for investors and traders, for bitcoin to operate as a currency, it needs to demonstrate stability for general users.
However, because bitcoin is still far from reaching its maximum money supply, the value of bitcoin is presumed to grow rapidly in the upcoming years. Even if bitcoin sustains its upward price trend, high volatility will still exist, which will remain as a factor that may prevent analysts from justifying bitcoin as a global currency.
PBOC Halts Rally, Jawbones Bitcoin Markets Lower
This volatility has also forced various governments including the Chinese authorities to issue a warning statement on bitcoin usage. As the price of bitcoin surged above $1000 amid its price rally, trading volumes skyrocketed and the number of users significantly increased, the People’s Bank of China issued the following statement:
“Bitcoin is a specific virtual good and does not have the same legal status with the currency, can’t and should not be used as money in the market circulation. Participating institutions and individuals should carefully engage in activities such as Bitcoin investment and bear the corresponding responsibilities and risks.”
Lee understands that the growth and development of bitcoin are truly unpredictable and because of this nature of bitcoin, it is harder to predict its short-term future. But, if investors, traders, individuals and businesses across the world continue to develop awareness of bitcoin and its capabilities, the digital currency will demonstrate exponential growth in various regions despite potential setbacks established by governments.
Which also is the reason behind BTCC’s close relationship with the PBOC.
“BTCC regularly meets with the People's Bank of China and we work closely with them to ensure that we are operating by the laws and regulations of China,” Lee noted. Markets have since bounced higher, establishing a floor at $880, where the price of bitcoin on the Bitstamp exchange is $920 at the time of writing.