Sunday, February 2, 2014

Bitcoin Adoption = Bitcoin Price Stability?

Every time I open up the news section I am confronted with a story on how yet another online retailer is now accepting Bitcoin as payment. I don't believe the giant online retailers are interested in Bitcoin itself, the only motivation they have for accepting digital currencies is the publicity it brigs and the increase in business. I also do not believe that these retailers are going to be using the Bitcoin they receive from customers. The most likely scenario is all that Bitcoin will be converted to Fiat currency and that will put sustained selling pressure on BTC/USD exchange rate. If you have bought Bitcoin as a long term or even medium term speculative investment thinking that the value of BTC/USD will continue to rise, greater adoption by online retailers might put the brakes on any further price increases. I watch the exchanges very closely on a daily basis and the for the past few weeks the volatility on the BTC/USD has decreased quite a bit. The trading range has become more tight and the massive rallies that we saw just a month ago are nowhere to be found now. I may be wrong about this, but it seems to me that ever since news started to trickle in that companies like Overstock started to accept Bitcoin as payment, volatility decreased.

When I look at the chart on the BTC/USD pair you can see it was a pure speculators market with large swings until early January and then all of the sudden the market went into a sideways chop. Financial markets do go through different phases, but somehow I doubt all the greed of the Bitcoin traders has somehow tapered out. Either the speculators have found a new instrument or there is now another counter balancing force in the Bitcoin marketplace. I think as more online retailers join the Bitcoin ecosystem, greater stability will be brought to the BTC/USD exchange rate.

4 comments:

  1. I came across the website tonight and this article is one that particularly interests me because I was wondering just a few days ago about the impact of retailers accepting payments in Bitcoin but not actually accepting Bitcoin.

    A less volatile Bitcoin might convince some that investing in Bitcoin isn't such a bad idea after all. That said, if there's less volatility but a slow and steady rise, perhaps retailers would consider accepting Bitcoin itself.

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    1. Very well said, that was the point I was trying to get across, the retailers are
      just dumping their Bitcoin, they are not really interested in Bitcoins itself. They are just looking to piggyback off the popularity of Bitcoin.

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  2. This also got me thinking the same way that if people all over the world adopted bitcoin, is it possible that bitcoin price will become stable? Well, it’s possible but the real question here is at what value will it stabilise? What are your thoughts about this?

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    1. I think it will be impossible to predict what value, but lately if you notice the price of Bitcoin has been very stable, unless news out of China or some other BS rumors. So it seems 450-500 seems like a good range for now.

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