As the end of the year approaches, there’s been a glut of articles exploring the depressed value of Bitcoin across the web. To be fair, it is one topic that’s never far away from the headlines. Price is inevitably the barometer of success for those who view Bitcoin with varying degrees of distrust and/or misunderstanding and it commands similar attention within the industry also – for example, seven of the top ten stories on CoinDesk in Q3 of this year were about price.
But I don’t think that’s where the focus should be. Just to be clear, I’m not stating that the price has no relevance whatsoever. If you actually sank your life savings into Bitcoin at the height of the market at the turn of the year, you’ve been left with too few pennies to afford that snorkel that you now need to survive underwater, so it matters a great deal. But in the wider scheme of things, I believe that the lower price has been positive for one reason in particular – it’s bought some time to breathe.
Let me explain where I’m going with this. In 2014, we saw far lower levels of price volatility than in 2013. During this year, we’ve watched billion-dollar plus businesses such as Dell and Microsoft accept bitcoins for the first time. But as such global brands have given their seal of approval in a way that was unthinkable less than two years ago, there’s been little impact on the price in general. In fact, if anything, it’s tended to go down when news breaks of adoption by a significant business. The fact that most simply convert their bitcoins to fiat immediately, with this increased supply hitting the market and creating downward price pressure, is no doubt one of the factors.
But the simple fact is this: when you look at the ecosystem, there still remains a huge amount of work to be done to build the companies and organisations that are needed to harness the technology that exists today and to bring it before a mass market. We’ve barely even started – and where the first forays have been made, they have inevitably been focused on disrupting existing models and businesses. If you have even a passing knowledge of the block chain, you’ll understand that this technology is about far more than just money. And as a result, this year in particular, we’ve seen some of the brightest minds on the planet start to really drift towards full-time development of various 2.0 technologies that build upon the foundations that were introduced – lest we forget – only 5 years ago.
Of course, with a rising price, it’s easier to attract more hands to the pump. And as the price ebbs away, some individuals inevitably lose interest. But with each advance, more people’s eyes are opened to the potential that exists. But that is a key point here – we’re talking about potential. If you’re expecting Bitcoin to behave as a fully mature traditional currency with huge exchange volumes at this stage in its development, I suggest that you might be missing the point slightly.
So by removing the pressure of striving to build a business at speed using a developing technology beneath the shadow of a rocketing Bitcoin price, you’re left with a system in which individuals are far less likely to strive for quick wins. A depressed price helps you to build more sustainably for the future by muting that voice in your head that continually whispers that you’d make more money from simply buying bitcoins directly than trying to build a company.
Let’s consider some other metrics. With traditional financial industry heavyweights joining the party and with network recently seeing the highest number of daily transactions ever, you risk misinterpreting what’s going on if you base your view simply on the price.
At its core, Bitcoin is built using open-source software which means that anybody with an interest can get involved. One of the major benefits of this transparency is that you can actually see the explosion in the number of projects that are being worked on all around the world. Combine that with the massive growth in regular meetups, talks and conferences globally – an exponential growth in investment of intellectual capital, if you like, on top of the record VC capital that’s been pumped in during 2014 – and there’s absolutely no doubt in my mind that we’re looking at an ecosystem that’s coming to the end of an incredibly successful and important year in a far stronger position than every before.
As Benjamin Graham famously pointed out, in the short term the market is a voting machine; but in the long term, the market it’s a weighing machine. Don’t mistake a price based on sentiment today with a price driven by the ultimate value of these new businesses over the longer term. As I tweeted a quote from Bernard Lunn earlier today after the recent seven-year ‘overnight’ success of another disruptive financial industry business, peer-to-peer crowdfunding platform Lending Club that just IPO’d for over $1 billion after starting back in 2006:
Fintech startups that will be as big as Lending Club in 7 years time are probably using blockchain today http://t.co/swz7E4XjNR
— Dug Campbell (@DugCampbell) December 17, 2014
It’s been a huge year. But it’s far from over yet. Tomorrow I’m hearing that Benjamin Lawsky is likely to announce an outline of updates to the BitLicense regulations (live stream here) after which I’ve been kindly asked by CNN to take part in a Twitter live chat debate on the future of Bitcoin (#bitcoinfuture). There’s no doubt that this conversation’s set to continue for a long time yet to come.