The Bitcoin Price Rollercoaster: North to South and Back

A week ago, many Bitcoin enthusiasts were watching and waiting for the cryptocurrency to once again cross the US$300 per BTC price point. 7 days later, and price is down to as low as US$250.

The start of the year saw an even greater slump in prices that brought the cost of a bitcoin as low as US$177 in January. Since then the market price has been steadily rising, seemingly, on the back of a series of validating, and exciting success stories from the sector.

The combination of these milestones in Bitcoin's development has been increasing interest, trust, and awareness of coin not only as a currency, but also as a technology applicable to industries as diverse as remittances, and notary services. When asking why we've seen the Bitcoin price head south so suddenly it is plain to see that this is a complicated question.

Like any other currency, Bitcoin is going to experience the ups and downs of interacting and being influenced by external global factors, whether it's a strong dollar, or the nod of approval in a government budget. The fact we've seen volatility in the market in the last few weeks should reassure users that interest in Bitcoin is lively, and the market is becoming more intertwined with the external financial world.

Here's what we've seen happen to Bitcoin in the last two months.

The Positives

Regulation

Regulation by states and local governing bodies has previously caused great concern about the impact on digital currency start-ups. New York's BitLicense was perhaps the most public of these, drawing the attention of much of the Bitcoin community against regulations that many believed would stifle innovation in the sector.

The companies that are gaining the necessary approval to operate within these regulations however are demonstrating that cryptocurrencies are growing up, and are becoming able to distance themselves from the “wild-west” reputation of the past.

On Wednesday, the UK government issued a favorable report on the digital currency sector as part of the national spring budget. Not only did the Treasury pledge US$14.6 million in research funding, but also announced the application of anti-money laundering regulations to the sector. In doing so, it took an conspicuous step towards the UK becoming a global Bitcoin hub.  

In North America we've seen QuadrigaCX recently become the world's first publicly traded Bitcoin exchange when it received the approval of the Canadian regulators. Meanwhile on Wall Street, the Bitcoin Investment Trust beat the Winklevoss Twins in the race to become the first publicly traded Bitcoin Fund.

Venture Capital

Following the US$315 million raised last year, 2015 began with high estimations of the level of venture capital we would see flowing into the crypto space within the year. The news of Coinbase's previously record breaking US$75 million series C funding round almost immediately in January seemed to confirm this.

The news that previously stealth-mode digital currency start-up 21 inc. has raised US$115 million in venture funding continued the VC trend. These massive investments into start-ups working on digital currency projects has reinvigorated the belief that the technology is now firmly on the path of mass investment.

Surprising supporters

Digital currencies like Bitcoin have had a core of supporters for years now, celebrating the benefits and opportunities the technologies represent. What we've seen happening in the last few weeks is a surprising set of international players showing their appreciation and interest in the crypto space.

Utah has now made the news as a bill passed through its Senate chamber causing the state to begin looking into the practicalities of accepting Bitcoin payments for state services. Proposed by Utah House of Representatives member Marc K. Roberts, and already approved by the Senate's Revenue and Taxation Committee, the bill explores the way in Bitcoin could save the state payment processing fees.

The Negatives

Alongside these positive good-news stories however, the cryptocurrency world has had its share of less fortunate developments this year too. The price drop from the near US$300 mark last week seems to speak to a loss of user confidence in the currency, and there are some good reasons why that could be.

A strong US dollar

Not only has the Bitcoin suffered in its ratio to the dollar, so has almost every other fiat currency going. The strong dollar makes breaking the US$300 point harder, and also disincentives many US$ holdings users from investing in Bitcoin faced with a range of more stable yet currently cheap fiat currencies.

Thefts

The collapse of dark market exchange Evolution at the hands of a US$12 million exit scam by its founders is just the latest in a string of losses that have beset the digital currency world. In the same week, Coinapult admitted to have lost US$43,000 from one its hot wallets.

One estimate now puts the average monthly thefts from Bitcoin at around 18,500 every month since 2011. The prospect of making a jump to wider user adoption looks remote when faced with this scale of regular and seemingly unstoppable losses.

Regulation

Presenting a double-edged sword to the digital currency community, regulations are not solely seen as a positive step towards legitimacy and transparency. The fear of over-regulation stifling the nascent world of crypto start-ups fueled much of the protest around New York's BitLicense proposals.

Announcements, such as the UK government's plan to introduce anti-money laundering and Know Your Customer legislation for the cryptocurrency sector, spooks many smaller and anonymity driven users away from the currency.

Where next?

The factors outlined above suggest a longer-term growth in the perceived value of Bitcoin, or perhaps more specifically only the blockchain in some cases. Not purely as a speculative vehicle as we saw in 2012, but based on a deeper interest and understanding of the underlying technology itself.

With the psychologically feel-good figure of US$300 so nearly reached, followed by the dramatically easier buy-in price, there may now be resurgence of interest from past investors in Bitcoin looking to get back into the cryptocurrency. These reappearing Bitcoin users could lead to a short-term price rise as they scramble to increase their Bitcoin holdings.

Regardless of this short-term movement though, the longer term trajectory appears to be upwards as with no major dark clouds on the cryptocurrency's horizon, stories such as 21 Inc.'s mega investment, and BIT's Wall Street launch, will continue to raise interest and awareness among previously skeptical individuals and companies. 

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