Also read: Why Bitcoin Value vs. Dollar Doesn't Matter
That is for the Bitcoin full-timer. The lifer. The person who gets paid in BTC and knows how special it truly is. You learned about Bitcoin one day and said "This is going to change everything!" The one who owns a Bitcoin business, and sees it as "The Future of Money". To you, Bitcoin is The Internet 2.0. You are a little down because of the Bitcoin price drop, and you just need a little pick-me-up! Well, here is your Bitcoin pep talk, ladies and germs!
Fret not, little camper! Turn that frown upside down! I will give you four very good reasons not to fear the drop in price, but rather to embrace it. Wear it like a merit badge, young Eagle Scout! Your "Eagle Eye" for the next great global currency and online protocol was indeed right on the mark.
That is the easiest and most obvious reason. Buying something that was once almost $1200 for less than $400 is a good thing. The only way this wouldn't be a good thing is if you think Bitcoin is dead, and it is heading down to Ground Zero. Bitcoin has had more dirt thrown on it, mostly from the mainstream media and private interests, than a dinosaur's fossils. When Chunky Soup goes on sale for 30% off this week, you don't avoid Chunky Soup because it costs less. You see it as an opportunity to buy. Why avoid buying Bitcoin when it's price drops? The rich buy the prices of an appreciating asset drop. They seize the moment. Bitcoin price must rise over time. It has proven that it's value model works. So take advantage of the short-term sellers, and treat it like a coupon at your favorite store.
After five straight years of exponential growth, Bitcoin should have earned the benefit of the doubt by now. After one year on the market, it's value went from fractions of a penny to $0.05 USD, which is borderline infinite ROI. The next year, it rose to $0.30, only a 500% increase in value. Good luck getting that anywhere else. 2011 saw BTC rise to over $6 USD, which was just scary growth. The next year, it only doubled in value, a real "off year". 2013 was a rebound year, and it finishes up at almost $800! Mind you this was mostly because of the Mt. Gox Bot Buying Bubble, and the Chinese market having free reign at an initially unrestricted BTC market.
In China, it was like Wal-Mart on Black Friday. When Mt. Gox (more like Empty Gox) collapsed, and China was reminded what living in a totalitarian state is all about, Bitcoin had to click it's heels, and return to Kansas. Did you REALLY think Bitcoin was worth almost $1200 on Thanksgiving, after being worth about 2% of that on New Year's? Really? That was the mother of all bubbles, and if you didn't see that for what it was, I hope your learned something. I'll go over economic bubbles again later, so be prepared to use this knowledge soon.
In order to take that price drop seriously, you have to think of the major players secured by Bitcoin over the last year, including Dish Network, Dell Computers, PayPal, Expedia.com, Bloomberg LP and others. Are those not epic votes of confidence? They are not in Bitcoin for the long-term. You have to think that those mainstream players are fairweather friends that would run from Bitcoin based on its price versus the dollar. That Bitcoin has not proven it's inherent value by attracting these major players as business partners. In other words, you have to be the type of person that looks for every cloud in the sky to not see that Bitcoin is here for the long-term, which leads me to the second reason.
The facts are Bitcoin is doing everything right. It is getting more and more major merchants to accept it. It is securing more mainstream press in general, increasing awareness. The customer base is getting broader, with so many agreements to give people worldwide more opportunity to buy Bitcoin. Bitcoin production wasn't ramped up by greedy private interests during the bubble last year. And better wallets, stronger exchanges, new debit cards, and innovative trading options are being added every day to the Bitcoin ecosystem. So what is the problem?
The U.S. Dollar is the problem. The story goes that the Dollar is rising in value, up over 4% in the last quarter. That sounds great, but just like with the U.S. Consumer Price Index, you might want to look the gift horse in the mouth. The U.S. Dollar Index doesn't compare it to the Chinese Yuan, which was up over 7% over the same period. Just because other currencies in Europe are dropping faster than the dollar, doesn't mean the dollar is actually strong. The facts are the dollar did have a very good quarter, regardless. A stronger dollar buys more Bitcoin units per dollar than a weaker dollar. But let's look at the dollar's track record since Bitcoin hit the market in 2009. Maybe you will see something called an economic bubble? Or at least see an anomaly, if not a trend.
Any currency can have a good quarter, but if you listen to the U.S. Government (U.S. Department of Labor/Bureau of Labor) tell it, inflation was LESS than 2% from the beginning of 2012 to the end of 2013. Are you buying that? The national price of gas was $1.61 on January 3rd, 2009, the day Bitcoin was officially invented, and now it's price is double that. U.S. ground beef prices are up 79% since Bitcoin. A lot of that has to do with actual cattle supplies being at an all-time low, but inflation is only 10% of that number? Eggs have also consistently risen in price much higher than 1-2%. If the Consumer Price Index is a very controversial way to measure inflation, it is the most popular, and is government-controlled. The problem with the index is the goods themselves change at their discretion, as will the quantity of a good.
Like eggs. The price of ten eggs has been inserted for a dozen eggs in the index, but who buys ten eggs? Fewer eggs yield a lower price, and would drop the rate of inflation for eggs itself by almost 20%! The point is if you've lived in the U.S. over the past five years you know inflation is MUCH greater than 1.8% over the last two years. So why believe in the Dollar Index, also supplied by government forces? The fastest way to keep the dollar from falling like a rock is to convince Wall Street that the dollar is rising, and manipulating the Dollar Index is too easy and influential not to do. I just don't trust any government-supplied information, because why should I? Whatever they say, usually the opposite is true.
In some ways, Bitcoin is a victim of its success. With all of the new merchants coming onboard, when merchants take more Bitcoin, they are selling it out into USD 95% of the time. And they do a lot of volume of Bitcoin sales. The seller's market is outnumbering the buyer's market at this point, with the merchants almost exclusively selling Bitcoin out of the market. Bitcoin is attracting companies in the business of selling out Bitcoin.
If merchants were taking Bitcoin, and then paying employees in Bitcoin, the ecosystem and price would strengthen, not weaken. That conversion to paying employees in BTC as a popular option is still in Bitcoin's future. Right now, that's a rarity. But the eagerness of merchants to accept Bitcoin is another sign of its enduring strength and market demand. This is a very good thing, but paying employees in Bitcoin would be a great thing.
Also read: Will Bitcoin Price Continue To Go Down?
As we went over earlier, Bitcoin has gone through the Mt. Gox Bot Bubble, the closure of Silk Road, the Chinese government/People's Bank of China (Their Federal Reserve) regulation of the Bitcoin exchange market in China, and Ben Lawsky's draconian NY Bitcoin License fiasco over the last 12 months. And Bitcoin is still up 200% over last year at this time.
The stock market is in the middle of one of the largest bubbles in it's entire history. The economy is stagnant, at best, but the stock market is booming? Did you ever think to ask yourself why? It wouldn't have anything to do with all the new phony Fed money that's been created since "Quantitative Easing" began being invested into the stock market, which is a textbook way to create a stock market crash? Inflated stock value without any actual production supporting it? And all "Bull Runs" come to an end, and this one is running on fumes. The average Wall Street Bull Run lasts 2.1 years. This one is at 5.5 years. All good things come to an end. It's just a matter of time.
And how many times over the last year have you heard someone on TV, online, or in an investment discussion say "Buy Gold & Silver!"? You hear it almost every day. So how is silver down about 25% over the last year, and gold has dropped more than $100? These markets are rigged and manipulated, just like the Dollar Index and the Consumer Price Index. The banks control those markets, and they're holding the prices down, but experts believe the true price of gold and silver is as much as 10X what the listed price is.
If you believe everything you're told about the value of the dollar, the amount of inflation, and the price of gold and silver, you are walking blind without a cane. I do have a financial investment background on Wall Street, and all I can say is gold won't be under $1500 long-term, and is ready for unprecedented growth, only because the price you see is not real. One day, you'll wake up, and gold will be $5-8k an ounce. Silver will be $80. And hyperinflation and the dollar collapse will hit the United States like a freight train. The only question is: Do you see the shell game for what it is? And will you get out of the market in time, or collapse with it?
So what does that have to do with the price of tea in China? When these manipulated markets correct themselves over the next 3-4 years, Bitcoin will be there to reap the rewards. Smart people, rich in gold and silver, will sell when price seeks it's true level, and will invest in something else. Like Bitcoin, if they haven't already. You have to be patient. Fools rush in, and out.
In closing, no one said Bitcoin hitting the mainstream would be smooth or easy. Bitcoin is going through some growing pains. But I needn't go through history to show you how so many of today's staples have gone through bumps in the road only to come clean out on the other side, stronger than ever. There is too much money invested, too much technology available, too many built-in advantages, and too much corporate and global interest to stop Bitcoin at this point. The Network Effect. Bitcoin must go through this awkward stage, like a pubescent teenager who has outgrown his clothes from last year, before it can mature and become what you expect it to be. Last year, it went from Kid Currency to grown adult, married with children, with no stops in between. Then the market corrected it. And now, the Dollar is having it's day in the sun. And here we are. This too shall pass.
Bitcoin is an invention. It cannot be "uninvented". Bitcoin may evolve, may add new features, may change in value. But digital currency is here to stay, mostly because it is better than what's in place, and the world badly needs a better currency system, and the superior digital protocols that come with it. Bitcoin isn't controlled by a single entity, which scares most establishment forces, but the Internet was never centrally controlled, and it did just fine. And you are doing just fine with the Internet. Better than fine. Think of Bitcoin as the child of the Internet.
So have the experience of an Internet user, the savvy of rich investor, and the guts of a top poker player to watch the large waves hit the shore, and smile, knowing your island of digital providence has a secure future.
Bitcoin is not just a dollar price because Bitcoin is much more than a mere investment. The world needs Bitcoin to succeed. And by getting this far, it already has.
Images from Wikimedia Commons, Flickr, and Shutterstock. Additional sources: The Money GPS (YouTube).
Last modified (UTC): October 4, 2014 5:59 PM