Universidad del Rosario.

Bitcoin Case.
Belén Figuera Barrios.

1. Is Bitcoin an asset, a commodity or a currency? How does one buy Bitcoin? How are
they created? Why were they created in the first place? What are they used for?

Bitcoin was thought of as an electronic method of payments, because an alternative was

needed that was superior to traditional currencies and online payment methods that support these
currencies. Many analysts evaluated bitcoin in these terms, that is, as a digital currency. However,
today, most of the operations of this currency go through totally different channels.
Virtually no one uses bitcoin as a means of payment for the purchase of products and
services, but that the holders of this asset make their buying and selling decisions based on what
they expect to happen in the future with the price. Thus, bitcoin fulfills commodity functions,
because it has no intrinsic value, but you can buy or sell it at any time, just like the gold.
When we talk about bitcoin there is no fundamental value that can be calculated with a
widely accepted methodology. The main idea is that the offer of this cryptocurrency is limited, so
the price depends on fluctuations in demand. So, if we are going to operate with bitcoin, we must
know that the market price depends exclusively on trends in demand. That is to say, of the
expectations of the market, since there is no fundamental value that serves as a reference in that
sense.
Bitcoin is marketed in many exchange houses and global markets and is known for
its high volatility. Unlike traditional markets, the Bitcoin market never closes, which means that
both investors and traders can buy or sell Bitcoin 24/7, 365 days a year.
The cryptocurrency appeared almost 10 years ago. The person or group of people who
created bitcoin are hiding under the name of Satoshi Nakamoto. It was on behalf of this person
that, in 2008, the cryptographers received a document that revealed the essence of the
cryptocurrency in the paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
The meaning of the creation of bitcoin is that the creators wanted a currency that was
out of control of monetary authorities, who could not control the value of the currency. Although
that was the initial pretext, little time passed, so that other advantages of bitcoin were recognized.
One of the most important advantages is that, being a virtual currency, it knew no borders, you
could make international transfers faster and without costs, you only need an electronic device to
acquire it.
The idea of Bitcoin is to be able to make online payments. There are more and more
websites that accept payment with Bitcoin, companies like Dell and Microsoft accept payments
with this. However, Bitcoin is the favorite currency of criminals, because it has been surrounded
by many controversies in its development. It is the official means of payment in illegal online
businesses, from the purchase of weapons or drugs to money laundering.

2. How is Bitcoin separate from blockchain?

Bitcoin is a distributed and decentralized ledger in which all financial transactions are
recorded. This accounting book is implemented through a technology known as blockchain. Each
block in the blockchain represents a series of transactions. Once enough transactions have been
made, the block is complete and can’t be altered. So, the Bitcoin is known as the “asset” and the
Blockchain is the technology that works as a database, which eliminated the need for a digital
currency.
However, the qualities of being immutable and confidential allow the use of the Blockchain
database for applications other than cryptocurrencies. This is how the Blockchain technology is
now available in different business areas, such as banking and finance, government, health,
insurance, etc.

3. Should John Brown buy Bitcoin or any other digital currency? Why or why not?
Should he consider a short position instead? Is Bitcoin a long-term investment asset
or a short-term trade?

Yes, he should buy bitcoins or any digital currency, because they have expressed a certain level
of confidence because more than 10.000 merchants in the world accepted bitcoin as payment and
also shown some benefits, that normal currencies don’t offer.
He was curious and discovered how to buy or sell a bitcoin, it was to “select a wallet provider,
create an online account and link it to a bank account and buy the bitcoin” (John Brown, 2018).
 Besides, Brown founded that “you could use an escrow service to short bitcoin directly, and
there were third parties that provided the ability to short futures contracts or buy and sell binary
options on bitcoin” (John Brown, 2018).
The volatility of Bitcoin and the always open markets make it ideal for traders interested in
short-term profits.

4. Why has the price of Bitcoin increased and decreased so much in such a short amount
of time? What factors may be behind its Sharp rise and fall in price? What are
potential risks of buying Bitcoins at this time?

The price of Bitcoin is worth what people are willing to pay for it, that is, given its digital and
decentralized nature (it is not regulated by any bank or country whose regulations could influence
or determine its price) the only factor that determines its Value is what is established between
supply and demand.
What people are willing to pay for Bitcoin is very much related to the fact that online
marketplaces accepted Bitcoin and that international transactions were cheaper than the dollar.
Likewise, another of the elements that most pushed its growth was its solidity against depreciation,
causing many citizens to fear the devaluation of their currency began to invest in bitcoins, to avoid
the depreciation of their savings.
Like the rises, the Bitcoin decreases are also related to a wave of events or information that
may affect the development of the cryptocurrency. When you begin to doubt the confidence of the
digital currency, it loses followers, people stop wanting to acquire it and for that reason it falls.
Some of the risks of buying bitcoins, may be that the "virtual currencies" are not backed by
physical assets, by a central bank, or the assets or reserves of that authority; the transactions on the
platforms are anonymous, so the use of virtual currencies can be lent to carry out illicit activities,
digital wallets can be stolen, hacked, etc.
 5. What is the regulatory response thus far regarding Bitcoin? How should John Brown
factor in potential regulation into his investment thesis?

Cryptocurrencies are testing the financial regulation of many governments around the world.
In Mexico, so far, operations with crypto currencies such as bitcoin are not regulated by
any authority, so anyone can make use of these virtual assets. Bitcoin, or any other virtual
asset, is not backed by the Bank of Mexico or the federal government.
The United States has one third of the world's bitcoin market, which is why the Financial
Crimes Control Network published a special guide on this cryptocurrency. At the federal level,
all cryptocurrencies, such as bitcoin, are treated as goods susceptible to taxation.
In the United Kingdom, cryptocurrencies are recognized by financial authorities as foreign
currencies or as private money, according to the Bitcoin Market Journal. The operations of
bitcoins in this country are not subject to the regulations on money laundering, since this type
of currencies are taxed with the taxes that are charged on goods or services as a result of a sale.
Likewise, under German law, cryptocurrencies are financial instruments or, more precisely, a
kind of private money that is subject to the same taxation as any medium of capital.
In Colombia, there is currently no regulation. The Bank of the Republic, the
Superfinanciera and Supersociedades have only issued recommendations and clarifications,
but not strict regulations.
As we can see, at this moment more and more countries are recognizing as legal and
regulating cryptocurrencies, among them the most famous "The Bitcoin", perhaps a barrier to
the recognition of these as legal may be the little development that each country on issues of
regulations through technology.
John Brown must take into account the regulation in his thesis, to increase the confidence
in people to use bitcoin as a means of payment, and finally recognize it as legal in the world.

References:
Investopedia. (2019). Bitcoin. (online) Available at:
https://www.investopedia.com/terms/b/bitcoin.asp (Accessed 27 Mar. 2019).
John Brown. (2018). Bitcoin: Investment or Illusion?. Darden Business Publishing. Published
on Jan 29, 2018.