The year 2016 was a good one for bitcoin. The virtual
currency became the best performing currency by more than doubling its value,
rallying 126 per cent on the year, while the runner-up, Brazil’s real, gained
21 per cent.
The rally had caught the attention of Chinese regulators
concerned that the currency was being use to facilitate capital flight.
Authorities had gotten wind of the fact that some of their citizens were using
it to take cash out of the country while circumventing strict regulations. People
would buy bitcoin onshore, then sell it offshore for another currency, and move
the money to a bank account. In the past six months, the yuan has accounted for
98 per cent of bitcoin trading.
Aside from these activities, according to analysts, bitcoin
has begun serving the same purpose as gold. At a time of increasing political
uncertainty, it is being used as a “risk-off trade when [people] are concerned
about what’s going on in the capital markets,” Chris Burniske, an analyst at
ARK Investment Management told the Washington Post.
Yet bitcoin is very volatile. When news broke that hackers
had stolen an equivalent of $66m of bitcoin from the Hong Kong exchange,
bitcoin prices slid by 20 per cent.
But after last week’s slump, Bitcoin’s price began climbing
again and there is evidence the currency is becoming less volatile.
Over the past three months, bitcoin’s volatility (30-day vs the US$) has displayed similar volatility to the yen, the British pound and the euro while being at times more stable than the Brazilian real, the South African rand and even gold. And it has achieved this without the help of a central bank.
