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Bitcoin may burst. You still need to learn about it.

Bitcoin 2On December 19, 2017, Bitcoin was trading at just over $17,700 – an increase of more than 34,000,000% over its 2011 price of $0.05. Almost all this exponential growth has been in 2017, which has people asking if Bitcoin is a bubble.

My opinion? Yes. It has many of the classic signs.

Bitcoin’s value has increased dramatically in a short time, attracting novice investors. Its valuation is extremely difficult since it’s not backed by anything tangible like gold or silver. Lastly, as an investment, Bitcoin doesn’t pay interest or dividends. To make money, investors will have to sell their Bitcoins. For these reasons, I think the Bitcoin bubble will burst eventually. I’m just not sure what the triggering event will be or when it will happen, but it will happen.

Even if you’re not one of the lucky (or brilliant) few who bought low and will sell high, riding the bitcoin wave into early retirement, you still need to know about cryptocurrencies. Here are just a few reasons why:

Here in the US, the IRS released a notice in 2014 stating that “for federal tax purposes, virtual [crypto] currency is treated as property.” As Bitcoin adoption and use has spread, the AICPA has asked the IRS to update this guidance. While I doubt U.S. regulatory agencies will embrace national Bitcoin use anytime soon, if Japan successfully implements Bitcoin as money, other counties could follow suit. This would bring widespread adoption of cryptocurrency closer to home.

  • The possibility of commodity-backed cryptocurrency: Bitcoin may account for most of the $200 billion cryptocurrency market, but it is certainly not alone. There are currently more than 1,300 cryptocurrencies, each with unique features and applications. Some, like Bitcoin, strive to become a mainstream currency. Others are developed as an innovative means of raising capital in the form of value tokens or utility tokens that are sold in Initial Coin Offerings (stayed tuned for more on ICOs in a future blog!).

These types of cryptocurrencies are being created by individuals, corporations, and even governments.  Earlier this month, Venezuela announced plans to create a cryptocurrency backed by the country’s oil reserves. If Venezuela can pull this off – or even get close to proving the concept – the criticism that cryptocurrencies aren’t backed by tangible assets would no longer be valid.

  • The evolution of money: The ancient bartering system using animal skins and weapons has been extinct for centuries, having given way to coins and paper money. Technology advanced us to credit and debit cards, then quickly took the exchange of traditional currency to a new level with mobile payment services like ApplePay and Square Cash. Cryptocurrency’s use of cryptography and transparent distributed ledgers combat some issues with traditional fiat currency systems, such as counterfeiting, vulnerability to fraud, and long and costly settlement periods.

While the Bitcoin bubble will burst sooner or later, it will not be the fall of cryptocurrencies. This is just the beginning, and Bitcoin has laid the groundwork for other cryptocurrencies to follow. Now is the time to learn more about cryptocurrency concepts and prepare for further disruption of global currency systems. 

Amanda Wilkie has a computer science background, but she’s not your average geek. With two decades of technology experience, Amanda has spent 14 years driving change and process improvement through innovative technology solutions, working across firms of varying sizes in the public accounting profession. She has held strategic leadership positions in firms ranging from Top 50 to Top 10 including her most recent role as CIO of a Top 30 firm.  Amanda is a recognized expert in the profession who regularly speaks and writes on blockchain and cryptocurrency and their impact on the profession.  To learn more about Amanda, connect with her on LinkedIn.

Bitcoin bubble courtesy of Shutterstock.


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