“(T)he halo around bitcoins and other virtual currencies appear to be fading and their combined market value has dipped to USD 6 billion from over USD 11 billion a year ago.”
This is the opening shot in a Bitcoin hit piece in India’s Zeenews. Bitcoin has been getting a good amount of press of late, and though most pieces still have warnings about the number of Bitcoin scams perpetrated, exchanges that have tanked, and the ability of Bitcoin to fund terrorists, the tone of these pieces has lightened considerably when compared to what was being written about the topic a year ago. The number of high-profile, ranging from Bill Gates to Edmund Moy, who’ve come out with positive comments about Bitcoin coupled with the nascent technology’s refusal to just go away, has caused some journalists to check their facts.
While it’s true that the value of Bitcoin and its sister currencies have dropped by more than half over the last year, it’s also true that the top price Zeenews touts was a massive inflation of the Bitcoin price caused by short-lived pile in of Chinese investors coupled with high-speed trading bots on what was at the time the biggest Bitcoin exchange, Mt. Gox.
The price run up was in and of itself artificial. The subsequent hits to the Bitcoin’s price caused by repeated hints of a Chinese ban plus the hack and failure of Mt. Gox have made 2014 year of consolidation and recovery rather than natural growth. Without those dual hits, the current valuation of ~400 dollars might very well be seen as historically less spectacular, but still respectable growth over the price from a year ago.
Zeenews is right to point out that there have been problems in the growth and development of Bitcoin. They would do well to note the larger context as well.
What attracted my attention to this article more than anything else, though, was the title of the article: Bitcoin club loses steam; market value tanks over 5-bn. The word ‘tank’ is loaded, suggesting that the decline has just happened. In fact, the fall happened in stages through the first half of the year, and Bitcoin has twice tested a $300 bottom.
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In fact, the relatively low price may be masking a substantial growth in Bitcoin adoption. BitPay and Coinbase continue to grow the numbers of merchants they service and the numbers of Bitcoin transactions has continued to be on the upswing. Some speculated that with a growth of merchant adoption that Bitcoin is now easier than ever to use, but that merchants also usually choose to cash out to national currencies immediately to protect themselves from volatility and to make tax compliance easier. If this is the case, then this means that bitcoins are constantly being dumped on the markets depressing the prices.
This is further exacerbated by the fact that when prices are low, the miners, who are engaged in technological race to have more computing power than their competitors, must cash out their Bitcoin rewards at a faster pace than they might otherwise do if the price were higher.
In Bitcoin’s favor, on the horizon, we have greater regulatory and tax clarity, greater large-merchant adoption, and the coming on line of professional trading services targeted to Wall Street. We are also likely to see further development in the non-currency features of Bitcoin led by CounterParty and other innovative companies. When all of this starts to kick in, the price will start to increase and will continue to increase until the market cap is large enough for Bitcoin to fulfill its real promise of servicing the billions of unbanked – including in India.
Agree? Don’t agree? We’d love to hear your comments.