The two major cryptocurrencies Bitcoin (BTC) and Ethereum (ETH) have made big news stories. Bitcoin recently achieved its all-time high price of over $1,290 on March 4, surpassing the spot price of gold, about $1,228, in the process. In the last several weeks, the price of Ethereum has surged over 150% to almost $50. The increase in demand for the two cryptos has many reasons, but they also have downside risks.
Since late last year, Bitcoin entered a sustained uptrend due to investors' uncertainty and concerns over populism, protectionism, and volatility. After the upset US presidential election, nervous investors shifted dollars to bitcoins. Especially in China, investors and speculators bought bitcoins due to continued capital outflows and the ease of trading yuan for BTC. In India, the user base of Bitcoin has grown by over 250% since the November cash demonetization.
Ethereum, whose price somewhat correlates with Bitcoin's, has also surged due to explosive demand. In March especially, the rise was due to partnerships and developments in the Ethereum community. Ethereum Harmony is an independent peer that allows one to manage funds and use an application program interface from a computer. On March 16, trading volume surged to $450 million. In addition, in the last week Ethereum broke out in Google's search trends, leading more people to become aware of the alternative asset.
Bitcoin's main challenges include China's regulatory crackdown, new Bitcoin-based Ponzi schemes in India, and the threat of a hard fork in the source code. In January, the People's Bank of China issued two statements that warned Bitcoin exchanges to comply with financial regulations. China seems increasingly willing to police Bitcoin transactions and trading for paternalist and political reasons. The Reserve Bank of India has refused to recognize Bitcoin in any way. India's lack of regulation allows Bitcoin-based Ponzi and pyramid schemes to thrive, creating fear of fraud and cybercrime in investors. On March 10, the US Securities and Exchange Commission rejected the Winklevoss twins' proposal for a Bitcoin exchange-traded fund (ETF), citing regulatory uncertainty and fraud risk. Thus creating a Bitcoin financial instrument to be publicly traded is still a long shot. Finally, many exchanges are preparing for a destructive hard fork due to a longstanding dispute in the community over Bitcoin's direction.
Ethereum's biggest headwinds include its relative obscurity and emergence of Ethereum-based Ponzi schemes. Although it has been heralded as Bitcoin's second generation and the future of crypto, Ethereum is still not well known outside of select fintech circles. Yunbi, a major Chinese exchange, has identified a Ponzi scheme from the firm MLM Gateway's EthTrade and frozen suspicious transactions. The continuation of Ponzi schemes makes it difficult for new investors to take Ethereum seriously and buy with peace of mind.
Although a Bitcoin ETF was rejected, this week International Business Machines
The author does not hold any positions in BTC, ETH, or IBM.