Launched in 2009, bitcoin price was tremendously changing: from zero to 1300 USD in 2013, and 300 USD at the moment of this article.
What is Bitcoin Index?
For starters let’s define bitcoin price index (or bitcoin index as further). Bitcoin index is based on a weighted average of prices from exchanges all over the world. Due to high volatility bitcoin index is changing dramatically and when the bitcoin market valuation approached US$1 billion and few price index ups and downs, some people called bitcoin index a bubble.
How Bitcoin Price History Started?
The fact that the bitcoin was able to gain any value (and thus, the bitcoin price) in a free market proves that it does has some kind of underlying value as a commodity. While the early days of the currency were really just a few computer geeks sending meaningless payments back and forth between each other for fun, the bitcoin was eventually traded for real dollars when someone decided to take a gamble on the future value of the currency. Many of these early transactions, including the purchase of roughly $25 worth of pizza for 10,000 bitcoins, showed that the right to use the Bitcoin payment network was reason enough for bitcoins to have value and the bitcoin price started to increase.
Why is the Price Volatile?
When people complain about the volatility associated with Bitcoins, it’s important to keep the discussion in the context of what’s really going on with the world’s first widely used cryptocurrency. First of all, this is an experiment. The price of a single Bitcoin reached over $1,000 before the software even reached version 1.0, so it’s safe to say that we still have a ways to go when it comes to the maturation of the protocol. Sometimes it helps to take a step back and realize that this is a new invention that was only released in 2009. The fact that the Bitcoins price is already where it is today is rather incredible, and the volatility is to be expect at this young age.
Is Bitcoin Price a Bubble?
One of the main criticisms that people make when talking about a possible bubble in the bitcoin market is that there is nothing to prevent bitcoin price from crashing to zero. People will point to the fact that you need dollars to pay for taxes in the United States or natural resources on the world stage, and they’ll also mention that gold also cannot drop to zero due to the fact that it’s used for jewelry and the production of various electronic devices. The people making these claims have not done their research because the fact of the matter is the Bitcoin payment system is what prevents bitcoins and the bitcoin index from dropping to zero. The protocol and the currency are linked together, and you cannot have one without the other.
What Can Stabilize the Bitcoin Price?
The real issue with the price of Bitcoin right now is a lack of liquidity. The market cap of all the Bitcoins in circulation is still rather low in the grand scheme of things, so it doesn’t take much money to move the price in one direction or the other. As more long-term investors enter the market, the liquidity pool will increase and it will be harder to move the price with a trade from an individual trader.
In addition to liquidity, regulatory uncertainty is causing a lot of problems for the Bitcoin. On the one hand, investors usually do not want to jump into an unregulated market that could eventually be hampered with restrictions and guidelines from various lawmakers around the world. The market definitely responds to news on the regulatory front, and you only have to take a look at the large price moves to see when a government has decided to make a statement about the cryptocurrency. The generally positive Senate hearings in the United States at the end of 2013 led to a sharp rise in the price of Bitcoins, but then the price started to crash back down after China started to make some less than favorable statements about Bitcoin.
Why Should the Bitcoin Price Go Up?
If the Bitcoin price is able to reach a more stable price in the future, then it should also gradually increase in price as time goes by. Although the Bitcoin is technically an inflationary currency, at least for the next 100 years, the fact of the matter is that the rate of increase in the total number of Bitcoins will likely be outpaced by economic growth and the number of people joining the Bitcoin network. If you take a look at the history of the Bitcoin price, you will notice a general trend of bubbles, crashes, and stabilization periods. This is partially due to the fact that the Bitcoin becomes much more valuable as a currency when the price stabilizes.
The Bitcoin is much more valuable as a currency when it is a good store of value, so more people join the network during those stable periods. This is when they are more into Bitcoin mining with both cloud-based mining power and individual mining hardware. The price then begins to rise, which attracts new speculators who are just trying to make a quick buck. The price then hits a tipping point where people want to take their profits and leave the market. The market eventually crashes to a point higher than where it began, and then the process starts over again.
Bitcoin Price Use-Cases
The Bitcoin payment network really is the intrinsically valuable aspect of the P2P system, which gives bitcoins value, the basics for the bitcoin price, as well. There are many who will say that bitcoins lack intrinsic value, but most of those same people would not make similar claims about the blockchain technology that makes this digital cash system possible. There are a variety of different types of payments that are only possible when using the Bitcoin network, which is what creates demand for bitcoins in the first place.
Silk Road was the main catalyst in proving that the bitcoin does have value. Within a very short period of time, the bitcoin price doubled; within a week, the bitcoin price had quadrupled, at that time it cost more than $30.
Although the Silk Road was an important part of Bitcoin price history, we’re now seeing many more applications where Bitcoin will be the main payment mechanism. Dark Market is a P2P-style Silk Road that won’t have a single point of failure. The Bitcloud Project wishes to build a distributed database that can be used as the base for future distributed applications. These types of projects and many others will all require Bitcoin as the method of payment because it is the only way to transfer value over the Internet in a censorship resistant manner. Other use cases, such as microtransactions, also need to be considered when thinking about the bitcoin price.
What MtGox Has to do With Bitcoin Price
MtGox was involved in roughly 75% of all trading at that time, and everyone was trying to get into the bitcoin market at once. The bitcoin price kept rising to around $250 until the exchange suspended on April 2013 for a market cooldown.
Criticism of Bitcoin Price from Warren Buffet
Many people point to Warren Buffet when backing up a claim that bitcoins have no real value because he’s quite possibly the most legendary investor of all time. Buffet claims that Bitcoin could have a bright future as a technology for payments, but he doesn’t see any merit behind it as a currency. He believes we shouldn’t see speculation on the price of a bitcoin as a solid strategy because people will be entering and leaving the Bitcoin ecosystem instead of using it as a currency. In one of his most famous sound bites, Buffet claimed that bitcoins had about as much intrinsic value as checks. Another well-known investor, Bill Miller, pointed out how this claim is invalid because checks and money orders don’t have a hard limit of 21 million. We’ll have to wait to see what happens over the long term, but there’s no debating that a large number of people are finding the bitcoin currency to be rather valuable right now.