Over the last decade, bitcoin has gained more critics than cheerleaders and continues to hit the headlines daily. But after a turbulent few years, bitcoin is starting to mature and is at last heading into a long-awaited period of stability.
The 18-month Long Crypto Coaster
Lots of people are sceptical about bitcoin, and question whether it has any fundamental value. The debate is vicious and bitcoin has variously been labelled an ‘ideology’ built on ‘crank assumptions’; or conversely, lauded as the saviour of the world economy.
General bitcoin scepticism has been made a lot worse by the huge volatility over the past 18 months; with bitcoin seesawing up and down in price very quickly. But the last year had not covered the cryptocurrency in glory either.
Bitcoin dropped and then jumped wildly throughout 2017, soaring from below $1,000 to $20,000 on the CoinDesk Bitcoin Price Index (BPI), before falling back. Some commentators predict that bitcoin could reach as high as $50,000 this year, from the current levels of around $7,500.
Concern over these rapid swings is understandable and exacerbated by the fact that these movements don’t seem to be linked to anything fundamental – except for the emotions of people on the day.
A Period of Maturity and Stability
But I believe we are now moving into a period of maturity in the market, and that shifts in price won’t be so radical and extreme. Why? First, transaction batching is becoming more prevalent, and while this lowers the amount of activity, it is a strong sign that bitcoin is starting to gain real-world traction.
Secondly, the adoption of robust scaling solutions is rising, including SegWit, and Lightning Network has launched. But possibly the most encouraging sign is the take-up of bitcoin by retailers, which will drive transaction volumes, adding stability and confidence.
In addition, big players are starting to enter the market as institutional investors take another look at the possibilities, and like what they see. Investors such as Goldman Sachs and George Soros have recently entered the market, changing the bitcoin narrative away from risk and towards reward.
Fundamentals and Price
As the market matures there is going to be a tighter link between price and the fundamentals. So savvy investors should start looking more closely at pricing fundamentals. But what are those pricing fundamentals?
Governments are getting involved in bitcoin regulation. While for the bitcoin purists, the introduction of regulation by the establishment goes against the currency’s entire ethos, government involvement is a positive step towards bitcoin’s acceptance as a real, general usage currency. Regulation has the effect of removing fear and building trust. Both of which need to be addressed in the bitcoin market.
Demand and Supply of Bitcoin
The laws of supply and demand apply to bitcoin in a very obvious way. While demand is high and supply low, and commentators obsess about its value, the currency will continue to swing wildly. But as demand moderates and levels out the currency will begin to perform in a more traditional way on the markets. It is likely that recent moderations combined with the entrance of big-player investors will achieve that balance of supply and demand.
More companies and retailers are starting to gain confidence in bitcoin. They can see the value of the coin and are starting to give clients and customers the option to pay for real-world products and services using bitcoin. This is the biggest opportunity of all for bitcoin. The more businesses use it, the more institutions will invest. This will guarantee a measure of stability that has not been seen to date and will quash much of the hype, both positive and negative.
This year bitcoin may well come of age, grow up, and be recognised as an acceptable alternative to traditional money. There may finally be a period of bitcoin stability.
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