Why Has Bitcoin’s Price Gone Up So Fast?
The path for large investors has been smoothed by the Chicago Mercantile Exchange and Chicago Board Options Exchange, which have been racing to roll out Bitcoin futures contracts. Most banks are already signed up with these exchanges and consequently can immediately begin trading the contracts. The options exchange has said it plans to start trading on Sunday.
It is still unclear how the arrival of Bitcoin futures will influence the demand for the digital tokens.
With a futures contract, banks can bet on the price of Bitcoin without holding the underlying Bitcoins. This is expected to bring many new players into the market who don’t want to deal with the complications of holding Bitcoins.
But the futures contract will also allow investors to short Bitcoin, or bet on the price’s going down, which has been hard to do until now. Some analysts think this could put downward pressure on the price. Other market participants have worried that Bitcoin futures could spread the risks of Bitcoin into the rest of the financial system.
What role are smaller investors playing in the virtual currency markets?
Individual investors have been just as active as large investors.
What are the dangers of getting into this market?
Many of the largest exchanges, including in South Korea, are essentially unregulated. The lack of oversight means that no one is checking that the exchanges are properly securing their customers’ money or that large players are not able to manipulate the price. One of the largest exchanges in the world, Bitfinex, has been hacked numerous times and provides little transparency about where it is keeping its money.
Even regulated exchanges, like Coinbase in the United States, have not been battle tested like larger financial institutions, and their operations have gone down at key moments.
Once people buy Bitcoin or other virtual currencies, they are often targeted by hackers who have become experts at penetrating Bitcoin accounts. Bitcoin “wallets” are vulnerable to new kinds of attacks that are not a problem for ordinary financial accounts.
Most important, in contrast to money in a bank account, when a Bitcoin is gone there is essentially no way to get it back and no insurance covering its loss.
Are more people using Bitcoin to pay for things?
When Bitcoin was released in 2009, it was described as a new kind of electronic cash.
Many people who want to use virtual currencies for online payments are looking to Bitcoin competitors, like Bitcoin Cash and Monero.
What role are the other virtual currencies playing in this frenzy?
Earlier this year, bullish sentiment was focused on Ethereum, a virtual currency network that is more adaptable than Bitcoin. The price of Ether, the virtual currency on the Ethereum network, has continued to rise in recent months, but not as fast as Bitcoin.
Where did virtual currencies come from, and how do they work?
The software released by Satoshi set out the basic rules for Bitcoin and the computer network on which it lives. Unlike other forms of money, which are controlled by governments and financial institutions, Bitcoin operates on a decentralized network of computers that no one institution controls. For more details, see our Bitcoin explainer.
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