With various world currencies currently undergoing a major evolution into the realms of virtual and 'crypto', it is fitting that The Financial Times announced that Bitcoin was the best-performing currency of 2016.
To cap off a great 12 months after 3 years of up and downs, the world's highest profile cyptocurrency exceeded $1000 at the start of January. This constitutes its highest level in 3 years.
The facts
The value of Bitcoin rose by 125% over the course of last year. These extreme gains led many to believe that it would soon reach its all-time high of $1163, a peak it hit back in 2013. Yet at the time of writing on 31st January 2017, Bitcoin stands at a very healthy $933.36 on Coindesk.
Previous Volatility
With these fluctuations in mind, it is understandable that some investors stay wary of the notoriously volatile Bitcoin.
Back in 2013, Bitcoin was subject to a ten-fold increase in value in just 60 days. It then lost much of its value due a string of crashes. It sunk to around $200 in January 2015, before recovering over the course of two years.
Signs of stability
Despite a dip in value of around $150 during the course of the first two weeks in January alone, Bitcoin has been relatively stable. Some economists believe this stability is due to the devaluation of the Chinese yuan. The yuan fell by 7% over the course of 2016, which constitutes its worst performance in more than 20 years.
Chinese investors are now looking to exchange their currency for something that their government doesn't have the power to devalue. As a result, it seems highly unlikely that Bitcoin will return to a high level of volatility any time soon.
Controversy
In many ways, the advantages of Bitcoin also translate indirectly to disadvantages. Its attractiveness to investors lies in the lack of fees. Meanwhile, its anonymous nature creates the ease with which one can move it between countries.
Unfortunately, this also makes Bitcoin popular on the dark web. The story of Silk Road is surely the most notorious example of its use for illegal purposes. The controversy led to widespread reluctance to accept the new currency, which in turn hindered its growth.
Promise of Bitcoin amid uncertainty
The success of Bitcoin in 2016 has much to do with the fact that global markets are extremely sensitive to political events. Brexit and Donald Trump's election win are prime examples of this. As a decentralised currency, Bitcoin isn't affected by such events in quite the same way.
This great uncertainty could make Bitcoin extremely lucrative. Much like gold, it has the potential to act as a kind of economic safe haven. The case of Chinese investors mentioned above shows that many already see Bitcoin in this way. While many news outlets have proclaimed the death of Bitcoin at different times, the currency's profile continues to rise.
Prior to the 2014 Scottish Independence Referendum, some economists suggested the country make Bitcoin its official currency, amid concerns about its relationship with the pound. Yet while it is still way too early for any nation to adopt it in this way, the future of Bitcoin looks bright for 2017 and beyond.