Everyone and his dog are worried about the ongoing decline in the value of Bitcoin, but I am here to tell you that 1) This is good, and 2) The trend will eventually reverse.
There are punctual events that tend to drive the value of Bitcoin down, and perhaps today’s Alibaba IPO is one. But I think there may be a structural reason the value of Bitcoin must go down at this moment.
Why is the Bitcoin Price Going Down?
Simple: we are starting to use Bitcoin to do things, buy goods and services, as opposed to holding Bitcoin for speculation.
If everyone wants to buy and nobody wants to sell, the price skyrockets. If more people want to sell, the price goes down. This basic principle of economy applies to everything, including Bitcoin.
But there are more and more user-friendly ways for consumers to spend their Bitcoin in the real world. Recently, Australian company CoinJar unveiled the country’s first Bitcoin debit card, which seems especially user-friendly and integrated with the existing Australian payment infrastructure. More people will start using Bitcoin to buy groceries and other goods. Their bitcoins will be converted to Australian dollars on-the-fly (because the merchants must receive Australian dollars), which is a sell order that drives the value of Bitcoin down.
In the US, consumers can shop at Sears, Home Depot, Whole Foods, and many other retailers, with the awesome Gyft cards system, using a convenient one-click app. Other similar initiatives are emerging, but most of them convert bitcoins to US dollars for the retailer, which drives the value of Bitcoin down.
I am paid in Bitcoin to write this article. Since I am not a speculator, but just a regular guy who needs to put food on the table, I will go to Bitstamp and exchange the bitcoins for local currency in my bank account. More and more people are paid in Bitcoin, and the majority do just that, which drives the value of Bitcoin down.
The Next Phase of the Real Bitcoin Economy
If my analysis is correct, we are beginning to see a structural downward trend, and this trend is good, because it shows that the Bitcoin economy is becoming real, with less speculation and more use as a currency for every day’s life. This is the first phase of the real Bitcoin economy.
If you are holding thousands of Bitcoin, you probably hate me for saying this. But don’t worry, the value of your bitcoins will go up again.
This won’t happen overnight. The majority of the merchants that accept Bitcoin sell electronic goods and services online, but regular guys don’t dream of electric sheep and don’t eat bits. The good news is that more and more brick-and-mortar sellers accept Bitcoin, in big cities with a critical mass of Bitcoin users. If I lived in New York, I guess I could pay most of the stuff that I need in Bitcoin, without going through a cash exchange. But, even in New York, only technically savvy consumers can do that.
When McDonalds will accept Bitcoin directly, and your grandmother will be able to buy a burger with a coupon or a simple one-click app, the value of your Bitcoins will go up again. So, the best you can do is to think of creative ways to bring about the next phase of the real Bitcoin economy.
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