It’s hard not to see the current Bitcoin price action as one or more very large holders of Bitcoins converting their inventory in a gradual, methodical fashion to keep from pushing the market into a tailspin. Normally this kind of gradual selloff would indicate what aircraft crash investigators euphemistically call “controlled flight into terrain.” In this case it appears to be more of a normal price adjustment.
Bitcoin went through a “tulip bulb” phase early on when people rushed into the new cryptocurrency frontier and drove prices to unsustainable levels. Bitcoin was also joined by competitors like LiteCoin, FeatherCoin and DogeCoin, which siphoned away some of the early adopters and fractured the market. In that light, prices trending lower are no real surprise.
Despite the gloomy price action lately, there are good reasons to believe in the future of Bitcoin.
Bitcoin projects and new exchanges continue to find support with VC money, from investors who are putting money into building new exchanges that qualify as money-transmitting agencies. Getting those licenses, which are issued separately by all 50 states, is a painful and time-consuming process. Two new US-based exchanges, Kraken and CoinMkt, are currently slogging their way through that labyrinth of sometimes conflicting state regulations.
In a slightly different approach, Atlas ATS is partnering with the National Stock Exchange [paywall], which is recognized as a Self-Regulatory Organization (SRO) by the Securities and Exchange Commission. By partnering with an SRO that will write the exchange regulations that Atlas ATS will follow, developers hope to avoid a lengthy approval process.
Traders in overseas markets have new options, including the UK-based CoinFloor Limited, a Sterling denominated exchange that is backed by Passion Capital, one of the larger European tech VCs.
The real genius of Bitcoin and of cryptocurrencies in general is the blockchain technology, that allows an unregulated network to accurately maintain a record of changes in ownership. Whether or not cryptocurrencies survive, the underlying blockchain mechanism will find its way into a world of new uses.
In one of the first non-currency uses of the blockchain technology, the Danish Liberty Alliance political party is using a blockchain-based voting system for internal voting by members [in Danish].
Since blockchain transactions are both secure and transparent, the technology is a natural match for voting and polling systems. It also won’t be long before blockchain makes an appearance in markets and exchanges, where it would enable a near frictionless exchange of almost any type of commodity.
With Bitcoin’s multiple personalities of being a currency, a commodity, and a technology, it should come as no surprise that the Bitcoin market is going to take a while to sort itself out.