Much has been made this week of the news that combined trading on bitcoin exchanges has reached a record high. As the BTC/USD exchange rate has climbed towards $400, so exchange volume has risen to close to 4 million bitcoin a day. As this Coindesk article points out, there are some who believe that the reported numbers are questionable and may be inflated by “fake trades” designed to give some exchanges the appearance of liquidity but, as with price, trading volume is not the metric to which those who believe in the future of bitcoin should be paying attention.
I will freely admit that what first drew me into the world of crypto currencies was the volatility of bitcoin’s exchange rate and therefore its potential as a trading instrument. I make it a point not to trade anything that I don’t understand though, and as I dug deeper into the subject the whole concept began to intrigue me. Bitcoin is not just another commodity, it is something that has the potential to fundamentally change the way we think about money and could ultimately be a huge force for good in the world.
Call me an idealist if you will, but it seems to me that taking the inflation risk out of the equation for entrepreneurs in developing nations has the capacity to encourage more business activity on a small scale. It has the potential to offer economic freedom to people who have been denied it in the past and the innovation and expansion that would come with that would benefit us all.
In order to achieve that, however, bitcoin must make the transition from trading instrument to currency. It can no longer just be viewed just as a kind of commodity without an end use. The European Court’s ruling to that effect this year was a huge step forward in that regard, but if the potential is to be fulfilled then the next step, the wider acceptance of the currency as both a means of exchange and a legitimate way to settle an obligation, has to come. That, in turn, depends on the rate of adoption, but also on how many transactions actually take place.
The news there for bitcoin this year has been mixed. Growth in the number of merchants accepting digital currency for goods and services seems to have stalled, even as the number of actual transactions via the blockchain continues to increase rapidly. Logically though, if the second trend can continue then it will have a beneficial effect on the first, and there is no sign of transaction volume slowing down. In fact the number of blockchain transactions has nearly doubled this year as the above chart from Blockchain.info makes abundantly clear.
When all is said and done, no matter how much one bitcoin is worth in conventional currency, nor how many trades are done on exchanges, it is this inexorable rise that tells the tale. As long as it continues those who dismiss digital currency as some kind of fad are simply incorrect and will end up on the wrong side of history.