By DAR Wong

Bitcoin was created sometime in 2008 by an unknown person named “Satoshi Nakamoto” and this digital money is a reward for cyber-mining. The software was released as open-source in 2009 and it attracted many “tech-guys” into the business of mining Bitcoin for its perceived value as the “currency of the future”.

Strictly speaking, Bitcoin is a form of decentralised digital currency but it is yet to be recognised as a legal tender by any central banks in the world. As it is not yet mainstream, there is no benchmark to measure the value although we know the maximum number of Bitcoins will be capped at 21 million units.  Effectively, Bitcoin is a commodity that can be used to exchange for services, products and ambiguously, for cash too. Back in February 2015, there were already over 100,000 merchants accepting Bitcoins as payments.

Some market sources commented that Bitcoin and all other Cryptocurrencies are just bubbles that are traps to scam investors’ monies. However, the “block-chain” technology – which all Cryptocurrencies built upon – is public data and so all transactions have proven to have a traceable history. By definition, block-chain is a public ledger that records all Bitcoin transactions on a network of communication nodes. They cannot be erased or altered once recorded into the system, and private keys are used to authenticate transactions and users to identify each other. However, the loss of private keys can render the disability to retrieve the user’s stored Bitcoins.

The recent soaring prices of Bitcoin has ushered many investors into another round of frenzy and hysteria. Other digital currencies like Ethereum, Lite-coin and Ripple coins have followed the path to be epitomised by investors. Following the inception of Bitcoin Futures trading into Chicago Board of Exchange and CME markets, global investors can now trade in Bitcoin contracts in a centralised market for cash settlement.

Almost all other commodities like energy products, precious metals, and agriculture commodities have lost their popularity since the market liquidity rushed into Bitcoin and other digital currencies lately. Mathematically, the value of Bitcoin has risen from about US$900 early this year to the high of US$19,000 in December, before settling down in the region of US$15,000 for Christmas. Technically, we reckon that Bitcoin could be in for a roller coaster ride in January when most of the ignorant investors get badly hit by a downward correction due to the versatile price swing in Futures market.

Many people have wondered if they should invest in Cryptocurrencies like Bitcoin or other digital money, I would remain neutral and not oppose to a new global rising trend. At the end of the day, you could make a crisp decision in staying outside the game or join the game with a mindset of proper risk control. While Bitcoin is an instrument with no benchmark value, it will not be a surprise to see it soaring to a new height after 1Q18, especially if the US stock market sees a correction after digesting Trump’s tax bill.

DAR Wong is a registered Fund Manager in Singapore, a columnist at Shares Investment and a speaker at our investment seminars. The opinions are solely at his own. He can be reached at dar@pwforex.com.