Last week’s events in the world of Bitcoin demonstrated that the fledgling currency still has further to go before it’s future is assured.
One of Bitcoin’s core developers quit last week, blogging that he believes that as an experiment “Bitcoin has failed”. While in the long-term he might prove to be right, in the short-term the crypto currency has weathered the storm.
The combination of his announcement and surrounding press and the announcement that an exchange had been hacked and lost around $6 million sent a shockwave through the market. The price per coin dropped from around US$458 in early January to a low of US$358 just a few days later. The price has since recovered more than half of the lost ground.
While Bitcoin clearly had a very good 2015 and has seen an increase in price and transaction volumes, volatility like this makes it difficult for normal businesses and people to rely upon for everyday transactions. One very important open question is whether or not the price will ever settle down.
The very nature of Bitcoin means that it is global and always open, so regulations and oversight are difficult, if not impossible. However, this lack of oversight offers opportunities for people or events to move the price. Therefore, it is quite reasonable for people to question why does Bitcoin have value and whether or not they can rely upon that value. For the time being, most major governments and policy groups are sat on the sidelines waiting for the space to develop further. Regulations of the main companies in the space will provide an even greater level of trust for consumers.
One thing is certain, the algorithm that underpins Bitcoin is set to have a maximum of 21 million coins. Coins are mined at a set rate and in July 2016 that rate will halve, meaning that the future supply will drop at a time when total transaction volumes are predicted to be higher than ever. A permanent BTC supply crunch may be approaching. If this is the case, then it ought to be very positive for the price and long-term investors.