It’s been an exciting time for cryptocurrency followers. After a few months of relative stability during which bitcoin traded within a fairly narrow band, the price of the coin took a sudden dive. From a high of about $6,500 at the end of the first week of November, bitcoin fell to around $3,500 within the space of just two weeks. Just when we thought we were entering a whole new era for bitcoin in particular and cryptocurrency as a whole, we’re back to the bad old days of the crypto rollercoaster. In one 24-hour period, the price of bitcoin managed to range from $3,448 to $4,101.
This isn’t the first time that bitcoin has given investors a sudden bumpy ride. The loss of nearly 50% of the coin’s value is a soft fall compared to the 87% collapse from $1,141 to $152 between the end of November 2013 and mid-August 2015. Or the 83% collapse from $259 to $45 over two days in April 2013. Or the 94 % collapse from $31 to $2 over five months in 2011. Bitcoin recovered from each of those falls, and there’s every reason to believe that a more mature bitcoin will recover from this one too.
But what happens then? What will bitcoin need most as it comes out of this collapse and enters a new era? What support should we be giving bitcoin to enable it and other cryptocurrencies to live up their potential?
The first thing that bitcoin needs is stability — and bitcoin needs that stability more than any other digital coin. Where bitcoin leads, other coins follow. Once the first cryptocurrency begins to trade permanently within a narrow band, we’ll soon start to see the other major coins following suit. Speculators will be able to punt on new coins generated by ICOs in the same way that stock traders buy penny stocks, but the rest of us can be content with the holdings of a digital currency that we bought years ago at a discount.
What will bring that long-term stability might just be the current temporary instability. Where there’s panic, there’s always an opportunity. But much of the recent fall has been driven by speculators dumping their coins for a loss. Those buying them now will stick around. The sellers trying to limit their losses won’t be back.
That’s a good thing. Right now, the economy in general and digital businesses, in particular, need an international electronic coin free from the control of national banks. They need people who are willing to hold through the dips instead of magnifying movements as they try to beat the markets.
That means that digital businesses hoping to take bitcoin don’t really need the arrival of institutional investors in the cryptocurrency space. Hedge funds and banks are welcome, of course. They’ll add liquidity, and their presence gives cryptocurrency a vote of confidence. They show other investors that bitcoin is a safer bet than they might think. But those institutional investors are already here. Reports indicate that institutional investors have already replaced high net-worth individuals as the biggest buyers in transactions worth more than $100,000. They didn’t bring stability. They came because of the stability.
Businesses need stability because what they really need is a return to the days when other merchants were willing to accept bitcoin, and customers were willing to spend them.
Those days pretty much ended last December when Steam announced that it would no longer accept bitcoin. Price volatility and high transaction costs pushed out a service provider that should really have been the ideal customer for an international digital coin.
But bitcoin was never meant to be an asset. It wasn’t meant to make millionaires out of a handful of visionaries — and impose losses on everyone else who bought and sold at the wrong time. It was meant to make international transactions easier. It was meant to provide a way of buying and selling that couldn’t be manipulated. It was meant to give the internet the financial service it has always lacked.
The need for that service still remains. Buyers and sellers still need a way to make transactions without paying the giant fees demanded by online payment services. Entrepreneurs who have built businesses online still need their own currency and control of their own financial futures. They need customers to have an easy way to buy bitcoin, keep it safe and spend it when they shop online wherever they choose to shop online.
The price of bitcoin itself doesn’t matter. Bitcoin doesn’t have to trade at $20,000 again. It doesn’t need to hit six figures or to turn early entrants into millionaires, however nice that might be. Bitcoin just has to do what it was always supposed to do: ease financial transactions in a digital business environment.