Does The Bitcoin Price Matter?

Does it matter whether the price of Bitcoin goes up or down and, in so doing, steadily or drastically?

This is a question that both the enthusiasts who have invested their souls alongside their worth in Bitcoin and skeptics who are more than excited to hear JPMorgan CEO Jamie Dimon say that the cryptocurrency is going to be stopped, have had to grapple with every so often.

There was no time that this question was more relevant than in a four-day period beginning on November 2nd. This is when the Bitcoin price surprised everyone, including those who thought they had mastered its trends ( Wedbush Securities has revised its 12-month Bitcoin price projection from US$400 to US$600.), by whooshing from about $320 to almost hitting the $500 mark (as a matter of fact, it did hit on some exchanges such as the Chinese Huobi).

Xtapol, a Reddit user, “Price matters for a number of reasons, but the biggest is that the utility of Bitcoin is directly related to the market cap – higher value means more liquidity available for transactions. It can’t possibly be widely used if the entire system can only store $7B worth of value.”

And as fast as it had gone up, the price deflated back to the regions where the surge began. This is too much volatility even in Bitcoin standards.

 

The question begged for answers once more

Several theories have been floated to pin down the definitive cause of this drastic price change. They include a capital flight out of China due to new regulatory control measures. There is also a view that it was caused by an unprecedented demand for Bitcoins from MMM Global, a pyramid scheme run by Sergey Mavrodi.

Mr. Mavrodi is a Russian who has been convicted before for operating similar schemes and defrauding hundreds of thousands of their money.

Whatever the cause for the momentous swing, the question of whether Bitcoin price really means anything was once again shoved onto the faces of those who follow cryptocurrency trends. Just like before, this seemingly simple question, out of this will invite, not one, but a set of answers, all of which are valid depending on the person who is giving them.

For those watching from outside, the price might mean something especially if it is the parameter by which they measure the validity of the cryptocurrency technology. It also matters if they view Bitcoin as an investment tool they might want to be a part of or flee from.

The high volatility to some may also be a sign that Bitcoin is not fit to be a store of value, medium of exchange or even a unit of account (in essence; it makes it anything else but money).

 

Is Bitcoin price even relevant?

Meanwhile, on the other hand, those who are excited about the technology will easily tell you that it is not even alright that Bitcoin’s value is defined by how much it exchanges with the dollar or any other fiat currency.

For instance, Fred Wilson, a VC with a lot of interest in bitcoin, has said in the past saying that it is the “best thing

[for Bitcoin is for] people to stop focusing on & talking about price.”

For people in this school of thought, what makes Bitcoin has little to do with bitcoin but the technology that supports it. Indeed, there are many other doors that the Blockchain, the technology on which Bitcoin runs, will continue opening besides currency.

Iwantfreebitcoin, a Reddit user, “higher prices tend to make people feel more interested in it. Each big run should hopefully bring in new users and make the bitcoin network stronger and stronger.”

Nevertheless, even the staunchest supporters of the technology will not argue against the fact that no one would want to own bitcoins if they are worthless in the open market, which means there will not be a motivation to maintain the blockchain (Unless it is the permissioned kind the banking industry is interested in).

Considering everything, it makes sense to hang on to the view that the price of Bitcoin in the short term does matter but for long term consideration of the existence of the technology, it does not.

 

By | 2016-12-07T00:32:46+11:00 November 12th, 2015|Bitcoin, Bitcoin Technology, charts|0 Comments

Leave A Comment