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January 03, 2015, 06:43:39 PM |
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So, it’s apparently official: According to Bloomberg.com, Bitcoin is the worst performing currency of 2014. This and other articles seem to delight in the fact that the virtual currency has lost over 70 percent of its value in Dollar terms this year. It has, they gleefully point out, fared even worse than the Ruble!
From a long term perspective, however, Bloomberg handing the title of “worst performing currency” to Bitcoin is just another sign that BTC is here to stay.
The bad news, as encapsulated in those stories is obvious. The seemingly unrelenting fall in value has been dramatic, but not particularly surprising given the starting point. The dramatic drop this year is in part down to a calendar coincidence.
At the end of last year, Bitcoin was just beginning to deleverage following an enormous speculative bubble. Much of the meteoric rise above $1000 was fueled by Chinese buying and, once the government of that country attempted to put the brakes on the market, a collapse of sorts was predictable. What many critics don’t seem to understand, though, is that even many supporters see that collapse as a healthy thing. Those who embrace Bitcoin and see the potential come in many different forms politically and otherwise, but they all share one trait: a belief in the power of free markets. The fall in price is simply evidence that the market is functioning as it should.
Inevitably, given a large degree of public hesitancy about the local currency there, Chinese interest is back now that the initial panic is over, and once again the majority of trading is originating in that country. The gold rush effect of miners looking for easy money has gone and making money at that game is now, as should be the case, about innovation and cost control. Market forces have, as they usually do, regained the upper hand and that hand is having a steadying effect.
The good side of the coin (pun intended) is that all of this has increased recognition, and therefore acceptance, enormously. Merchant acceptance has increased exponentially this year and that is no doubt a positive for the future, but more importantly public awareness and acceptance has taken off. All of those opinions, whether good or bad, generate discussion and that increases awareness.
The extent to which that public acceptance has increased is actually evidenced by Bloomberg referring to Bitcoin as the year’s worst performing currency. A year ago most mainstream media outlets saw Bitcoin as a fad with no real value and were skeptical of its role as a real “currency.” That they and millions of others can now understand that a currency doesn’t necessarily have to be government issued and that all are based solely on a perception of value is an enormous leap forward.
Even if the doom-mongers are correct and Bitcoin fades away, that legacy will remain. I suspect that Satoshi Nakamoto, the pseudonym for the founder(s) of Bitcoin, would call the exercise a success if, as a result, the general understanding of the underlying assumptions behind fiat currencies increased. Fading away, however, looks unlikely.
2014 has been the best of years and the worst of years for Bitcoin. Awareness and, more importantly understanding, have increased significantly, even as the price drop has continued. As I wrote last week, that dynamic will likely continue into the first half of next year, but eventually increased usage and liquidity will eventually result in stability, at which point supply and demand will take over. It may seem strange to embrace the title of “worst performing currency,” but the status of currency that that title implies simply hastens that time, so should be welcomed.
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