mrb's blog

Bitcoin Hits All-Time Trading High — This Time With Increased Economic Activity

Keywords: bitcoin finance

Bitcoin just hit its all-time high exchange rate, three hours ago, breaking 32 USD/BTC on MtGox, the most popular Bitcoin exchange.

The last time it reached 32 USD/BTC was one year and eight months ago, on June 8, 2011. Back then it was very clearly a speculative valuation bubble. It had risen from 0.6 USD to 32 USD in merely two months (+5000%)! A few days later, the exchange rate fell and stabilized around 14-18 USD. Then a well-publicized hack of MtGox forced its closure for an entire week (June 20 to 26). When it re-opened, contrary to popular belief, there was no panick sell-off: the exchange rate remained around 14-18 USD for a good month. Then from August through November, it resumed its fall down to a low of 2 USD in November, which was a healthy and unavoidable correction of the speculative bubble. Of course, commentators who did not know better shouted "Bitcoin is dead!".

This time, things are different. Firstly, the increase in value has been relatively slower and steadier: +140% in the last two months, which is still a lot, but much less dramatic than the previous +5000% (nonetheless I still think there is at least a small speculative aspect). Secondly, and most importantly, this time Bitcoin has genuinely experienced a corresponding increased economic activity. Silicon Valley startups have been founded around the currency, many small businesses have adopted it, including some high-profile ones: Wordpress, Mega, Namecheap, Coinlab, Coinbase, etc. Of course the list would not be complete if I did not mention the infamous Silk Road marketplace who went from zero to $2 million monthly revenues in bitcoins in its two years of existence. Or the SatoshiDice gambling site who went from zero to $0.5 million profits during 2012.

If the exchange rate drops for whatever reason in the near future, I fully expect press articles announcing, again, "Bitcoin's death". And they will be, again, wrong. Bitcoin's adoption is obviously on the rise. There is a fixed number of them —21 million coins, divisible to the eight decimal— so their value should continue to increase on the long term, because of the laws of supply and demand.


Bill wrote: I really like your blog. I'm wondering what's your thoughts on ASIC mining... 03 Apr 2013 06:08 UTC