Chart of the Week

Entries in Stock Markets (11)

Thursday
Feb232017

Week 7, 2016: Bitcoin Price v.s. Internet Users by Region

 

Summary: The chart shows that Bitcoin is a niche market which bears no correlation to the number or distribution of individuals across the globe who have internet access. The most prominent feature on the graph is the extraordinary rise in Bitcoin value during 2013 when the crypto-currency reached 5 years of age. Bitcoin has been on the rise again since mid-2015 sustaining a price over $1000 for the longest period to date. Last night’s closing price was at its highest since the peak 2013, within $30 of the all-time high. With the exception of 2014, Bitcoin has outperformed every other currency each year.

What does the chart show? The black line shows the Coindesk daily Bitcoin Price Index in USD from 18th July 2010 until 22nd February 2017. The other lines show the number of internet users per region, as compiled by UN agency, ITU, using a variety of sources. The internet user data is annual and given in users per 100 inhabitants.

Why is the chart interesting? Some of the initial interest in Bitcoin during early 2013 can be attributed to the Cypriot banking crisis earlier that year but it was a flood of interest from largely middle class Chinese investors in H2 2013 that fuelled its astonishing rise. It dominated news in November 2013 when it reached its peak price (a couple of dollars above that day’s spot gold price). This represented a 10,250% rise from the value at the start of the year. A dramatic drop followed, and investors saw a fall of 28% in a fortnight. In 2015/16 Bitcoin appears to be rising in a more stable fashion than before- during 2013 it had daily swings of up to 40% whereas this volatility has calmed to around 10% per day.

The recent rise is surprising following actions by the China’s central bank to restrict Bitcoin exchanges in a bid to stem capital flight, which prompted withdrawal freezes by a few of them. On March the 11th the US Securities and Exchange Commission is set to issue a decision on approval for the first Bitcoin exchange-traded fund, a venture of the Winklevoss brothers and no doubt a source of some investors’ optimism.