Bitcoin prices experienced a sudden surge earlier last week. The price which was hovering at around 225 USD to 227 USD suddenly shot up to cross 250 USD. So what caused the sudden surge and what does it imply?
First, let us get to the bottom of the price gain and to do that, we need to have some knowledge of current world affairs, especially in Europe (which most of us might already know). One of the nations in the European Union (EU), Greece has been in troubled waters for a while now. The country started experiencing an economic slowdown in 2008 and the condition has been deteriorating since then. In order to revive the economy, Greek politicians decided to seek help from the International Monetary Fund (IMF) and European Central Bank (ECB) and Eurozone countries forming the Troika. The Troika decided to revive the country’s economy by lending a huge sum of money amounting to 110 billion EUR.
The bailout package did come with riders that required Greece to implement austerity measures, make structural reforms and privatize government assets. The Greek government failed to implement all the reforms as per the bailout agreement and the economy still continued on a downward spiral. The austerity measures ended up causing more trouble among the citizens than improving the economy leading to discontentment among Greeks. The country received two more bailout packages until the recent elections where the Syriza Party won the election upon the promise of delivering Greece from debt and removing austerity measures.
The worsening economy had led to the speculation that Greece would have to exit the EU in 2012 and it was further strengthened after the recent elections. Greece is currently in a deadlock with Troika regarding repayment of debt as the country wants a large part of it to be written off in addition to receipt of remaining funds from the previous bailout package which is currently frozen due to the country’s non-compliance to the terms of agreement requiring implementation of reforms. As the bailout package hasn’t materialized yet, the country is at the brink of sovereign default with eroding liquidity.
Given the situation continuing, Greece will soon be out of Euros to pay the employees of the state or any other social benefits. This means Greece will have to ditch Euros and have its own currency. In case Greece introduces its own currency, the value of the currency will be very much lower than Euros. Also, further deterioration of the nation’s liquidity will mean collapse of banks.
Greeks panicked and stated withdrawing funds from their bank accounts to avoid being cut off from their savings in case of any further deterioration of the economy. In order to preserve their wealth, people started investing in assets. The only two valuable assets out there at the moment are gold and Bitcoin. People who have faith in Bitcoin chose the latter, resulting in increased demand for Bitcoin and a surge in circulation leading to increase in Bitcoin price.
People buying Bitcoin as personal assets shows increasing acceptance of Bitcoin as a legitimate currency and valuable asset across the world.