Wednesday, September 13, 2017

If Bitcoin is truly decentralized then why does it gain or lose value on news regarding banks and global markets?

There is a growing dichotomy that is perhaps threatening the myth that Bitcoin and other cryptocurrencies are truly de-centralized and outside the purview of sovereign governments and global markets.  And that dichotomy is why did the value of Bitcoin fall when a Wall Street banker simply made statements that his firm would not be trading the cryptocurrency, and also why do these cryptocurrencies tend to rise or fall dependent upon random financial news that should have no effect on them if they were truly outside the scope of financial markets?

Bitcoin is trading down Tuesday afternoon after one of the most powerful men on Wall Street said the red-hot cryptocurrency is in a bubble worse than any other in history.
Jamie Dimon, the CEO of JPMorgan, called bitcoin "a fraud" and "worse than the tulip bulbs" bubble of the 1600s while speaking at the Barclays Financial Services Conference.  
Bitcoin is down over $100 since Dimon made his comments, trading lower by 2% at $4,140 a coin. Still, it's up over 350% this year. - Business Insider
Bitcoin itself when utilized in its purest form is de-centralized.  However the amount of actual peer-to-peer transactions are miniscule when compared to the amount of trading that takes place on centralized platforms.
Those within the industry understand that one of Bitcoin's most important features—and perhaps its true core innovation—is its decentralized structure. 
Bitcoin has no central control: no central repository of information, no central management, and, crucially, no central point of failure. And yet, most of the actual services and businesses built within the Bitcoin ecosystem are centralized. They are run by specific people, in specific locations, with specific computer systems, and they are susceptible to specific legal entanglements. 
This situation creates tension and certainly a little irony—we have a decentralized technology, yet most things existing upon it are centralized. - Bitcoin Magazine
Added into this is the reality that 90% or more of Bitcoin transactions are done through one of these centralized infrastructures, and where the majority of buyers are not interested in using it as currency, but as a speculative investment.  Yet the fact that the price fluctuates with extreme volatility every time important or even random news about the cryptocurrency hits the wire, means that investors are more subject to financial events outside of Bitcoin's eco-sphere than they are in regards to events that have real and intrinsic importance to the currency itself.

If Bitcoin and cryptocurrencies were truly outside the purview of sovereign governments and financial markets, then what JP Morgan CEO Jamie Dimon said yesterday about the cryptocurrency should have had zero influence to the price, or to investors trading in the asset.  Because if JP Morgan has no intention of even getting involved in Bitcoin, then anything Wall Street says publicly should have no effect on its price movement unless the reality is that Wall Street and other global financial markets really do have significant power and influence on all supposed decentralized cryptocurrencies.


Post a Comment