I tend not to get too excited about things, a characteristic that I believe to be a consequence of earning a living in dealing rooms around the world for nearly twenty years. That is not to say that I am not passionate about some things, just that I take life’s highs and lows in stride. Watching BTC/USD drop from last week’s heady levels to be once again close to $300 has me no more aerated than watching it jump from $250 to $400.
Three weeks ago, when bitcoin was beginning its climb, I disagreed with the contention that what we were witnessing was a recurrence of the bitcoin bubble. That argument, that Chinese exchange controls would push BTC/USD up past the $1100 high from 2013, was an exaggeration then, just as is the claim that the drop back to just above $300 is a sign of the imminent collapse of the currency. The simple fact is that the young upstart bitcoin is still volatile as it finds its natural level, and is still higher than it was before the jump.
That is not to say that the quick run up and back doesn’t present problems, though. It clearly does in at least one sense. When I opined last week that we are in a significant time of change for bitcoin, it wasn’t based on the price. It was to do with a perceived change in attitude from many influential people. I still believe that to be true, but as a friend who read that piece pointed out to me the other day, there is one group of influential people whose perception of the currency is not improving: The rate of merchant acceptance of bitcoin is declining.
That matters, because no matter what the European Court says, bitcoin’s status as a legitimate, widely accepted currency is not about court rulings. It is about the number of people that use it for transactions. To make a transaction, though, you need a counterparty. If the number of businesses that accept bitcoin in payment for goods and services doesn’t continue to grow then the virtual currency cannot meet its full potential. That is not to say that bitcoin won’t have value, just that it will go the way of gold; something of value that can be stored, but cannot practically be spent without exchanging it for fiat currency.
Volatility such as we have seen over the last few weeks brings that unsatisfactory position closer to reality. I cannot blame retailers; it’s tough to take payment in a form that can lose a third of its dollar value in a week. Dollars or other currency has already been spent buying inventory, so gambling on what you receive for that inventory in dollar terms makes no sense.
I, like many others, was optimistic earlier this year that those days were behind us. We saw a fairly long period of relative stability, which gave us hope. Gaining 50 percent in value in a week, however, then giving it all back the next week may make for great opportunities for traders, but it makes it almost impossible for retailers, restaurants and the like to take Bitcoin as payment.
As I said, I still believe that we are in a disruptive period for Bitcoin in a positive way. The increase in projects using blockchain-like systems is bringing some reasoned coverage and many more are beginning to understand what bitcoin is and how it can be a force for good. The price of bitcoin really doesn’t matter much when it is viewed from an historical perspective, nor is a drop to $300 an existential threat. The volatility that we are seeing, however, when taken as a whole, could easily steer bitcoin away from what I believe to be its true function, that of a currency rather than an investment.