It's no secret that we have a negative opinion about Bitcoin. In the previous posts we've even called it Enroncoin. This was based on our belief that Bitcoin resembled an investment bubble. As with previous bubbles, we expected the Bitcoin bubble to burst in spectacular fashion, but that has not happened. Rather than bursting like a bubble, Bitcoin is deflating like a balloon. In the time that we have been watching Bitcoin, the BTC/USD price has bounced around the average like a grasshopper on steroids, while the average price has fallen from $650 to $250, a fall of over 60%.
Usually an investment bubble bursts with the release of bad news. The news creates a significant change in how people see the investment, and people start running for the exits. Bitcoin is no stranger to bad news, yet through it all, it has maintained a loyal base of supporters who refuse to abandon the cryptocurrency.
Bitcoin seems to have a knack for surviving bad news. It's been associated with criminals. We have seen numerous exchange hacks. This week Coinapult is back online after upgrading security because of a hack in which $42,000 worth of Bitcoin was stolen. Yet through it all, the Bitcoin community has remained faithful that this 'disruptive technology' will someday achieve mass adoption.
For mass adoption to occur, there needs to be some sort of incentive to use Bitcoin rather than cash. We are aware that 21 Inc recently raised $116 Million to raise awareness about Bitcoin. We do not believe that telling people about Bitcoin will be enough to make them want to use. People who are perfectly happy with their existing money, aren't going to change to a new system unless there is a clear benefit in making the change.
What we are seeing, is a mass dismissal of Bitcoin. People have heard of it, but don't really care. In their most recent meeting, the Reserve Bank of Australia stated that they will not regulate Bitcoin because it 'has no discernible impact' on the economy. They are aware that Bitcoin exists, but are happy to just shrug it off as too small to care about. They are not the only ones with limited interest. Tomorrow we will see the Buttercoin Exchange shut down, due to lack of funding, after only 4 months in business. They raised $1.3 million from initial investors, but this was not enough to keep them afloat.
As the price of Bitcoin continues to drift downward, we expect the air will continue to flow out of this investment balloon. If the supporters remain as loyal as they have in the past, then Bitcoin will survive... until the supporters run out of money to buy Bitcoin. No matter how much they love Bitcoin, there is no denying that money is flowing out of Bitcoin, as shown in the table below:
As you can see market capitalization of Bitcoin has fallen a little over 59%. This is the total value of all Bitcoin, and includes all new Bitcoin mined since July 2014.
The road ahead for Bitcoin does not look much better. There are now rumors that the Bitcoin Foundation is near Bankruptcy. The main reasons for their financial problems are the falling price of Bitcoin, and declining memberships. If this turns out to be true, it will be interesting to see how the market reacts. It may not shake the faithful, but it will be yet another hurdle in the road to mass adoption.