By Mark Norton: [email protected] 7/28/2014
I have a confession to make: Before becoming interested in Bitcoin, I hardly ever read the financial pages or took an interest in price predictions. It was the promise of Bitcoin that got me researching economic theory and looking over price charts to see if I could see a pattern. The truth of the matter is that I could! I saw lots of patterns. Double tops, triple bottoms, supports and resistance levels – they were all there. The problem was, and is, that they never helped me identify a real breakout either up or down. On the few occasions that I did try my hand at price prediction, I got a bloody stump back, teaching me that either the people who do this for a living know things that I don’t (likely), or that there isn’t as much to technical analysis as some would have you believe (also likely).
The time I’ve spent staring at the charts has given me some insights into what’s happening as the price jerks lower, even if I can’t predict in the short term which way the price will move.
This is still a guppy pond.
Though for those of us involved in the community it can seem that Bitcoin is all-consuming, its total market capitalization is a mere 8 billion (and falling). This means that the total value of all the Bitcoin out there is less than many mid-sized businesses. The trading on even some of the busiest exchanges can be extremely thin. So if I were to sell all my meagre hoard of Bitcoins at once, it’s possible that I personally could move the market price by a few dollars. An earlier adopter with a large hoard who decides to buy some beach from property, a large investor rebalancing his portfolio, or one of the payment processors selling Bitcoin to fiat to settle the days accounts will all exert an even greater pressure on Bitcoin’s price. The fact that Bitcoin has been relatively stable over the last few weeks made it easy to temporarily easy to forget this is a really easy market to manipulate, intentionally or not.
Overstock and Dell are driving down the price.
Connected to the point above, as more retailers accept Bitcoin, bitcoiners eager to make use of their hoards begin buying swag. Since most retailers convert all or the majority of their Bitcoins to fiat immediately, this creates sell pressure driving down the price. In the long term, this is actually good news, but it can make you seasick in the short term.
The BitLicense News
Though the commenting period is just underway, the severe conditions of the proposed New York BitLicense may be making buyers a bit more jittery than normal – making this market weaker than it would otherwise be. Though it time for this effect to materialize, I believe that this is a major factor in the current plunge we’re experiencing, and for good reason. If the rules go into effect as written, they will have a stifling effect on adoption and innovation in the US, which like it or not is still the hub of Bitcoin activity. It’s my belief that even if the rules were to get enacted as is, they would do little more than slow adoption and divert its course.
There may be any number of other reasons for this price drop. My feeling is that things are going to get better for the ‘buy low’ crowd before they get back to making the ‘to the moon’ crowd happy again, but there are strong reasons to think that that is what will happen: Bitcoin adoption is still growing with the number of merchants, big and small, increasing. Bitcoin continues to be in the news, and though a lot of that news has been tinged with negative comments even when it tries to be neutral, Bitcoin is slowly becoming a more commonplace term for more and more people. As more and more people decide to investigate just what this Bitcoin thing is for themselves, expect the number of adopters to rise. The number of advocacy groups like the Chamber of Digital Commerce, DATA, and yesBitcoin is growing to help educate the public and our politicians. And finally, when we look back at 2014 we will probably view this as the year when the real infrastructure was finally built. We are likely to see a number of new and innovative platforms, both for Bitcoin the currency and Bitcoin the protocol, come on line this year which will make Bitcoin even easier to adopt and use.
As personal policy, I stopped checking the price of Bitcoin more than once a day a few month ago. My expectation is not that Bitcoin is going to shoot up tomorrow, but that it is going to eventually (say two to five years) sweep the world because of the real benefits it brings to the people who use it. Bitcoin is disruptive and transformative – and it is just getting started.