The value of Bitcoin, a virtual currency which is gradually gaining traction in Nigeria, has crossed the $1000 mark, the highest in three years and is seen to rise to even further this year if the Federal Reserve of the United States accelerates its interest rate hikes.
According to CoinDesk’s Bitcoin Price Index it is currently trading at $1,023.57 climbing by 125 per cent to out-perform all other central bank- issued currencies. The virtual currency’s market capitalization is estimated to above $16 billion and a couple of factors have driven its popularity.
Last year the currency rallied in the fourth quarter of 2016 when the decision to demonetize large denomination notes was taken by the Indian and Venezuelan governments and Donald Trump won the U.S. presidential election. The most recent catalyst was increased demand in China after the government unveiled new capital controls and circulating rumors that the Chinese yuan may be devalued.
Denmark-based Saxo Bank in its annual hypothetical Outrageous Predictions report for 2017 speculates that the price of the digital currency Bitcoin could surpass $2,100 this year. The report which is not be considered Saxo’s official market outlook, believes that there is a possibility that under President Trump, US fiscal spending will increase the US budget deficit by 2-3x, from $600 billion to $1.2-1.8 trillion.
This may cause U.S. economic growth and inflation to increase more rapidly than expected, forcing the Federal Reserve to accelerate interest rate hikes, and causing the dollar to reach new highs.
According to ZeroHedge, “This can create a domino effect in emerging markets, and particularly China, who start looking for alternatives to the fiat money system dominated by the U.S. dollar and its over-reliance on US monetary policy. This leads to an increased popularity of cryptocurrency alternatives, with Bitcoin benefiting the most. As the banking systems and the sovereigns of Russia and China move to accept Bitcoin as a partial alternative to the dollar, Bitcoin triples in value, from the current $700 level to $2,100.”
Bitcoin’s price is also quite dependent on the size of its mining network, since the larger the network is, the more difficult – and thus more costly – it is to produce new bitcoins. As a result, the price of bitcoin has to increase as its cost of production also rises. The bitcoin mining network’s aggregate power has more than tripled over the past 12 months.