The Currency That's Dropped Further Than the Rouble This Year: Bitcoin

Bitcoin
A bitcoin enthusiast's coins in Sandy, Utah, January 31, 2014. Jim Urquhart/REUTERS

Bitcoin, the online cryptocurrency recently hailed as the most successful of its kind, has been valued as potentially the worst investment in 2014 by business site Quartz.

Bitcoin’s value has plummeted massively in the last 12 months, currently showing a bigger drop than the Greek stock exchange or the Argentine peso. According to the Guardian, one bitcoin is now worth less than half of what it was this time last year, having devalued by 52% since the start of 2014.

Even the Russian rouble which was declared the worst performing currency of 2014 and which has registered single day falls worse than those seen in Russia’s 1998 economic crisis, had outperformed Bitcoin as of Wednesday morning GMT.

Currently the rouble’s rate of devaluation in 2014 is 51%.

According to Andrew Davies, a Newsweek business writer, it isn’t highly surprising the cryptocurrency has hit a rough patch as the novelty of bitcoin makes it highly sensitive to changes in the trading climate.

“Right now people are feeling very worried and so are dumping holdings that they fear might fall sharply in value,” Davies says.

“Bitcoin is a prime candidate for this treatment because its value depends always on what I call ‘the greater fool’ - i.e. someone who is willing to pay even more for it than you did in order to take it off your hands and give you a profit.” Davies adds.

A surge in popularity of bitcoin trading over the first half of 2014 caused the value of the currency to skyrocket, hitting the highest ever rate of $900 per single coin and prompting the number of merchants trading in the currency who have made a billion dollars in revenue to increase from zero to 10 by the end of the year.

In the second half of 2014 however, the excitement surrounding bitcoin decreased and volatility in oil, equities, bonds, currencies and commodities has scared traders away from experimental currency such as bitcoin causing the value to drop to $334 per coin on Wednesday.

“When markets get rough, the supply of great fools tends to collapse and with it the value of things like bitcoin,” Davies says. “I tend to bracket bitcoin with gold, meaning that I cannot find any satisfactory way to value either of them.”

He continued: “Bitcoin doesn't produce any yield so you can't compare it to a bond or a share to get an idea of how much you should pay for it. It's price in the market is just a function of the balance of fear and greed that surrounds it at any particular moment.”

Paradoxically the tumble of the rouble has prompted a recent spike in bitcoin transactions as cryptocurrency analysis website bitcoincharts.com reported that on Tuesday Russian transactions, buying into bitcoin had skyrocketted, prompting the highest number of transactions in a single day since December 2013.