Bitcoin: Commodity or Currency?

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Electronic payment system Bitcoin is garnering praise, attention, and scrutiny in equal measure amidst claims the cryptocurrency could disrupt the entire global financial system.

The future of Bitcoin has never looked so important to so many people, as countries in the grips of financial difficulties turn to Bitcoin, while those with an interest in stocks and shares observe the growth of this new currency-commodity hybrid with intrigue.

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Interest and uncertainty

Bitcoin garnered huge interest in 2014, which led the likes of Paypal co-founder Peter Theil to set up his own Bitcoin payment solutions company. Cameron and Tyler Winklevoss, of Facebook fame, also created the Winklevoss Bitcoin Trust to invest and trade in Bitcoin, which received more than $200 million in publicly disclosed 2014 VC investments.

But the payment system has endured a more uncertain time during 2015.

Johann Palychata, a research analyst at BNP Paribas – one of the world’s biggest banks – told the Independent that the open source nature of Bitcoin could lead to “total disruption” amongst the financial world, with the existing systems that allow people to buy and sell shares and debt being potentially overhauled by the rise of Bitcoin.

Crisis currency

The teething problems as Bitcoin emerges as an alternative to traditional forms of payment have never been more apparent than in Greece, where many people rushed to buy Bitcoin during the bank closures that have occurred throughout the country’s ongoing financial crisis.

Whilst Bitcoin is proving increasingly attractive to Greeks who are facing cash withdrawal limits as well as bank closures, Bloomberg Business reported that Bitcoin transactions took up to five times longer to complete due to problems with the software that underpin the currency’s decentralised system.

Bitcoin is having to cope with more demand than ever before, particularly in places like Greece, and transactions are reported to have hit levels as high as 120,000 transactions per day, which is 10 times higher than the number of transactions occurring just four years ago via Bitcoin.

A global phenomenon

The rising popularity of Bitcoin is reflected around the world, with more than 45,000 people across 68 countries attending Bitcoin meet-up groups to learn about the payment system, and there are an estimated 500,000 to 1,000,000 U.S. digital currency accounts.

Bitcoin ATMs have started to appear around the world, and various major brands have started to accept Bitcoin payments. But is Bitcoin a currency or a commodity?

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This is a key question for anyone involved in stocks and shares, and the answer is that it is both. Regulations and definitions around Bitcoin are still being developed, which is part of what makes Bitcoin such an attractive prospect on the markets, and predictions on the movement of Bitcoin’s value is the subject of interest at many a spreadbetting website, where anyone can learn about and bet on the movement of markets without having experience in trading.

Bitcoin was created as a means of exchange, but buyers can hold it and sell it at a higher level of value as well as looking to exchange it for goods and services, so it really can be seen as both a commodity and a currency.

Volatile future

In 2014, Forbes told the world to view Bitcoin as a commodity rather than a currency, hailing it as the path away from flat currencies and towards real diversification of the financial markets. The business and financial news site also predicted “non trivial volatility” as Bitcoin grows, increases in value, and becomes a recognised commodity.

That volatility is in evidence in 2015, and some are warning that Bitcoin’s current popularity is no guarantor of its future price. Comparisons are being made between Bitcoin and gold, given the lack of an intrinsic value to either.

Whether Bitcoin can enjoy the 6,000-year bubble that has sustained gold as a major commodity remains to be seen.


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