Bitcoin: Expert discusses recent drop in cryptocurrency value
The cryptocurrency was back with a boom this month, after its price soared to a previously unseen high of $41,000 (£30,000) on January 7. Despite this surge, just days later it would endure its worst decline in 10 months, leading many economists to criticise the volatile currency’s long-term validity for investors. Bitcoin, which was created in 2008, uses complex mathematical equations to secure its supply and transactions for investors.
Yet, serious panic erupted after China claimed it had created a machine which could solve these formulas in a matter of minutes, matching the technological advancements made by Google.
Google had previously announced that it successfully built a “quantum computer” two years ago that allowed it to “perform in 200 seconds what would take a powerful computer 10,000 years to complete”.
This, Forbes’ Billy Bambrough, a cryptocurrency expert, argued “potentially means Bitcoin, and the encryption that underpins it, could be broken” – and ultimately destroyed.
Google’s “quantum supremacy” was then mirrored by experts in Beijing, a nation which remains aggressive towards decentralised cryptocurrencies like Bitcoin.
Bitcoin warning: China ‘can breach cryptocurrency’s security and destroy it’ (Image: GETTY)
Bitcoin has fluctuated in price this year (Image: GETTY)
Their new quantum computer outperforms what Google’s had the ability to do, with Chinese researchers detailing that their prototype “took just over three minutes to complete a task the world’s fastest traditional computer would take more than 600 million years to solve”.
In a statement, the research team added: “This achievement firmly established our country’s leading position in international quantum computing research.”
According to the South China Morning Post, a quantum researcher argued that the machine, unleashed last year, didn’t yet have the ability to decode encrypted information, such as Bitcoin.
But Richard Murray, chief executive of London-based quantum computing company ORCA, claimed it was only a matter of time.
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Bitcoin was created in 2008 (Image: GETTY)
He added: “There are still people who question whether quantum computers will be a reality.
“With two systems [Google’s and China’s] having achieved this benchmark, that argument is sounding quite unlikely.”
Although the technology is now beginning to dominate discussions in nations such as China, tech expert George Gilder told the Mind Matters podcast how Bitcoin was still ahead of the game.
He said: “Quantum computing is a very special purpose machine.
“You may be able to to build [a quantum computer] that can break one form of encryption but there are all sorts of ways to circumvent the threat that quantum computing poses to Bitcoin and other such encryption-based technologies.”
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Bitcoin store in Hong Kong opens in 2014 (Image: GETTY)
The primary concern for investors is whether Bitcoin is actually worth the risk of adding to their portfolios.
As seen this month, with the risk of highs and lows so rampant, some investors have claimed to be put off the currency, including Gerald Moser – chief market strategist at Barclays Private Bank – who has continued to argue against investment in Bitcoin.
Speaking after Bitcoin’s peak this year, he concluded that it was “nigh on impossible to forecast” its price, making it “almost uninvestable from a portfolio perspective”.
According to Financial News, Mr Moser added: “With spikes in volatility that are multiples of that typically experienced by risk assets such as equities or oil, many would probably throw the cryptocurrency out of any portfolio in a typical mean-variance optimisation.”
Yet, others – including value investor Bill Miller – claim the currency will only get stronger, as the price of Bitcoin rises.
Bitcoin: It’s unknown who created the currency (Image: GETTY)
Mr Miller stated as it was still in the “early stages of the adoption cycle”, volatility will always come with the currency.
As it gets stronger, however, the risk associated with investing will drop.
He explained that Bitcoin’s total supply is building at less than two percent a year, and that it was “obvious by the price that demand is growing much faster than that”.
Talking to The Exchange on YouTube, the founder and chief investment officer of Miller Value Partners said: “As long as that obtains, Bitcoin is likely to go higher and perhaps considerably higher.
“I think that Bitcoin… should probably be up 50 percent to 100 percent from here in the next 12 to 18 months.
“And if you were to ask me over or under, I would definitely say it would be much more likely to be higher than lower.”
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Britain’s Financial Conduct Authority (FCA) has issued its own warnings over the currency.
It said: “If consumers invest, they should be prepared to lose all their money.
“Some investments advertising high returns from crypto assets may not be subject to regulation beyond anti-money laundering.
“Significant price volatility, combined with the difficulties valuing [Bitcoin] reliably, place consumers at a high risk of losses.”
Express.co.uk does not give financial advice. The journalists who worked on this article do not own Bitcoin.