Sometimes, you can most definitely have too much of a good thing. That was certainly true when one of the most popular Bitcoin exchanges – Coinbase – temporarily collapsed when the Japanese government announced in 2017 that Bitcoin was now legal tender.
Formed in 2012 by Brian Armstrong and Fred Ehrsam, Coinbase has its headquarters in San Francisco and operates exchanges of Ethereum and Litecoin as well as Bitcoin. By 2014, the company had a million users and launched a vault system for the secure storage of Bitcoin, and the following year, received a $75 million investment from several US financial institutions, marking the first time traditional finance had taken a direct stake in a digital currency enterprise.
However, even the established giants of the cryptocurrency world couldn’t cope with such an extraordinary demand for trading, leading to both the website and mobile apps being down for several hours.
How did the crash happen?
So what precisely caused the temporary crash? Recent weeks have seen Bitcoin’s price by 50%, with a high over that period of $2,700 per unit. In short, demand has been as high as the price, caused not least by the news from Japan. To quote the exchange itself, they “experienced unprecedented traffic and trading volume”, causing “a few outages and downgraded performance for some users”.
It’s a positive move – if exchanges adjust to the increase in traffic – for both investors and retailers alike in the Japanese market. For an airline – in this instance, the no-frills Ja
Bitcoin News: why the Coinbase crash might be a positive thing in the long run
Japanese outfit Peach – to be accepting Bitcoin to book flights, is a significant step forward in legitimizing cryptocurrencies as a standard method of payment.
The other big push in Japan has come from investors. Interest rates are such at present, meaning that conventional savings accounts actually cost people money. If someone wants to save for their and their family’s future, they need to make smart investments instead, and at present, nothing looks like a smarter investment than Bitcoin. Add in the arbitrage trading happening in South Korean Bitcoin exchanges – another country that is about to declare Bitcoin as legal – and demand is will continue to rise.
Could this happen again?
What does remain an unknown at present is how much the digital currency is likely to fluctuate in the coming months. Other such popular investing surges can lead to something of a bubble, followed by the inevitable slump when it bursts. However, every instance of legitimizing Bitcoin makes it more attractive not just to investors, but to consumers for whom a small Bitcoin wallet might be a smart way to pay for goods and services.
As for Coinbase, valuable lessons have been learned, not just for the present, but to prepare for a future where other territories will recognize Bitcoin as a legal currency, and other enthusiastic investment surges will follow. The circumstances that lead to the temporary outage are likely to happen again, but forewarned is forearmed.
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