In search of the true value of bitcoins

Note of translation - translation of thoughts and predictions about what the real value of bitcoins from Winnie Lingham , CEO of gyft.com , working with digital gift certificates, is now.

tldr: There are several reasons why bitcoins don't add value. It seems to me that the price will consistently stay at around $ 400 for at least the next quarter (although it is very difficult to make predictions in this area for more than a couple of weeks).

The cost of bitcoins steadily kept less than $ 500 for quite a long time after they in November 2013 jumped above the $ 1000 mark. Scholars from cryptography scratch turnip and try to understand why it is so weak - especially against the background of joyful excitement and the search for innovations among bitcoin-enthusiasts. Venture capital flows into Bitcoin startups at a frantic pace (more than $ 100 million this year). Nevertheless, the last couple of days, many friends have asked me: "What is happening with Bitcoin?".

Bitcoin is now trying to find an equilibrium point, given the not so old shocks of the MtGox collapse type system. The balance, from my point of view, is a stable price position when there is a symmetrical growth and a daily increase in trading volumes (growth is asymmetrical now, and traders find it difficult to predict the direction of movement).

Historically, it is necessary to find a fairly stable price for at least a few months before the assault of past heights. Instability factors from Russia, Ukraine, China, etc. affect bitcoin volatility and change the supply / demand curve.
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Last week, I attended the CoinSummit conference in San Francisco and was well received with the report “ Bitcoin Transactions — An Overview of Barriers to Traders and Consumers .”

Obviously, Bitcoin has a huge potential, but we are at a very early stage of evolution - many draw parallels with the 1993 Internet. There is no mass approval from consumers. We are still waiting for “the phenomenon of Netscape” for Bitcoin.

I do not think that Bitcoin can be used as a currency - I think this is a commodity that can be changed for other goods and services. It can become a currency, but has not yet reached this point. So far, this is a scarce digital product - and trading on the stock exchanges reflects the market’s feelings about the value of this product.

In the near future, entrepreneurs and engineers will use Bitcoins in new interesting ways. How many of them will be needed is not yet clear, and this leads to an imbalance in prices. Now you can only guess how much bitcoin will cost in the future.

I have an alternative point of view on why bitcoin is now trading less than $ 500, but I’m promoting it in the long term. I even predicted at a Bitcoin conference in May 2013, which took place in Silicon Valley, that Bitcoin in 2013 would reach a value of $ 1,000 - at a time when it cost $ 100. I was even ridiculed by the audience, supportive of Bitcoin.

On the other hand, I believe that there are key factors due to which Bitcoin this year will not again reach the value of $ 1000, unless some special events occur. Instead of making unreliable forecasts, I will describe those things that are holding back Bitcoin development right now.

Taxes

Yesterday, TechCrunch wrote that recently the US Tax Administration announced that from their point of view, Bitcoin is not a currency, but a valuable contribution, and therefore transactions with them are taxed. As a result, when trading, you need to track transactions and calculate taxes. On the other hand, if you invest in Bitcoin and do not sell them, then taxes at this time do not need to be paid - unlike investments in foreign currency. This information, coupled with rumors of a ban on Bitcoins in China, led to the current Bitcoin weakness.

Adaptation by sellers is faster than by consumers.

The number of sellers accepting bitcoins has increased 5-10 times over the past six months, while the number of consumers is growing much more slowly.

Lack of trust in Bitcoin and limited purchasing opportunities

The story of MtGox and the missing bitcoins worth more than $ 500 million makes you treat any exchanges with distrust. So far, the only more or less secure place to buy bitcoins is Coinbase, and this is not a stock exchange. In the US, there are no licensed exchanges of this kind at all. While this niche is trying to occupy Bitstamp.

Most of my friends buy and sell bitcoins from under the floor, which masks the real supply and demand curve and knocks down the demand for bitcoins on stock exchanges.

Loss of speed

In connection with the above, the price does not grow, which is good and there is no instant enrichment, which would confirm the fears of people who believe that Bitcoin is one of the Ponzi schemes . (approx. transl. - a kind of financial pyramid).

Anyone who buys bitcoins, believing that they will only endlessly increase in price, will sell them at the very first signs of cheapening. Recent price bends will keep such customers from buying, which will give it time to stabilize before another price increase (historically, the price of Bitcoin periodically fluctuates up and down).

Miner profits decrease

2-5 years ago it was possible to mine Bitcoins and make a profit, paying for electricity and iron. Since then, the complexity of mining has increased much more than the cost of bitcoins. Just a year ago, miners created 50 coins in 10 minutes. Now they create 25 coins in 10 minutes, and it is already very difficult to earn profits from sales of mined coins.

I personally have bitcoins, and my company Gyft accepts them as payment. I bought some bitcoins today, and will continue to buy and sell them for the foreseeable future. However, I am not a financial advisor and the above thoughts should not be evaluated as a recommendation on investments.