Is Falling Bitcoin Value a Cause for Concern?

Trevor Altpeter
By Trevor Altpeter Jan 4, 2015 11:38AM BST

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Is Falling Bitcoin Value a Cause for Concern?

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In the short term, the answer is yes. Despite numerous encouraging announcements in the cryptocurrency industry, Bitcoin faces downward price pressure in the near term. Some of this downward pressure is inherent, as roughly 3600 Bitcoins are mined per day. Taking it a step further, at a price of $300 per Bitcoin, $1,080,000 of new Bitcoin must be purchased every day to maintain the current price. Bitcoin will need to live through another block halving or two before it has a chance of becoming the deflationary asset many of us look forward to.

Another short term cause of downward price pressure is merchant adoption. This may seem counter-intuitive but large companies are generally risk averse, and as a result, they are choosing to convert most of their Bitcoins to USD at the time of purchase. Although there are exceptions to this, notably Overstock.com, many of the largest merchants accepting Bitcoins are converting 100% of revenue to USD. The trend of downward price pressure caused by merchant conversion will be relieved by one of two scenarios. The first of which is end to end Bitcoin use within a company. In this situation, a financial entity is able to purchase their supplies using the same Bitcoins that were used to pay for the product by the consumer. The other possibility is that over time, Bitcoin becomes a reliable store of value to the point that companies observe a substantial financial upside to holding their wealth in Bitcoins. Either of these scenarios would relieve the downward pressure that is currently plaguing Bitcoin’s price.

In the long term, the answer is no. If you truly believe in the future functionality of Bitcoin, the current price should be no cause for concern. Though the outlook for price looks poor in the near term, the long term prospects of Bitcoin have never looked better. Regulation for Bitcoin use is beginning to take shape and multiple billion dollar companies are expanding into the space. There is speculation that financial heavyweights within the current system of finance will to lead the rise of Bitcoin once the regulatory environment is clearly established. Supporting this speculation is the money flowing into venture capital for cryptocurrency related business.

Venture capital is currently laying the rails for the payment network of the future. Each year has come with increased investment in the services surrounding the currency. BitPay, Coinbase, and Circle have acquired a substantial first mover advantage by recognizing the current need for payment processors and hosted wallets. The best chance of a short term price impact through investment is the development of a “killer app” that utilizes Bitcoin. There are a few projects that have the potential to be killer apps for Bitcoin including decentralized peer-to-peer marketplaces, decentralized gambling applications, and Overstock.com is supporting the development of the Counterparty project to offer competition to the NYSE. If you plan to benefit from the rise of Bitcoin, then it would be wise to adjust your time frame to years instead of months. We are already in unprecedented territory. Even just a decade ago, could you imagine a publicly held corporation accepting a currency issued without government backing? The process of altering the existing financial network will take timeC but the future is as promising as ever for cryptocurrency.

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Trevor Altpeter
Trevor Altpeter  → author
Trevor Altpeter is a writer who has been involved in the cryptocurrency space since 2011. Trevor is looking forward to the coming wave of decentralization.
TAGS: bitcoincryptcurrency
  • banerjek

    “Even just a decade ago, could you imagine a publicly held corporation accepting a currency issued without government backing?”

    You mean something that would quickly be converted to cash like an IOU from a credit card company? Seems we’ve been doing this for a long time.

    • None

      Only this “credit card company” i.e. Bitcoin is decentralize with no issuing authority or central control. That sir is what makes it different(and much cheaper to use).

      • banerjek

        To take advantage of these cheaper transactions, all the consumer need do is spend a small fee to convert fiat into bitcoin which they can then use for nonreversible transactions that lose all the protections and benefits they receive when using credit. No wonder so many people want to use bitcoin.

        Practically all of the current bitcoin value is speculative — i.e. people who don’t actually use it as currency are betting that others will want to use it.

        • VTHVBE

          Exactly. It’s the elephant in the room that BTC supporters don’t want to talk about. Bitcoin may be great for merchants, but it’s a horrible deal for customers. It doesn’t matter how many businesses sign up with BitPay to accept BTC; if consumers have no incentive to spend BTC, then Bitcoin will never be anything but a niche financial instrument.

          • NIBB

            So I assume cash and wire transfers are also then horrible for consumers right but yet widely used.

            What exactly is the difference between sending someone a wire payment, sending him cash or sending him bitcoins? None.

        • Crypto Currency Swot

          nonreversible used correctly is a blessing for merchants. At this point a merchant has to wait several weeks before a credit card company approve a payment, even if the customer/tourist is gone without a trace behind the horizon. Nonreversible protects the seller.

          Yet, a seller with good name and fame would always refund if the customer needs this and both agree so. Just like with cash or wired transfers a company like Microsoft, Dell, Overstock and millions of entrepreneurs world wide will reverse a transaction if the customer decide within the consensus to return a product or service.

          Just common sense. Credit Card Company is a pain in the ass of lots of businesses because of the high fee and “on hold” of payments. Credit Card Companies is a pain in the ass of lots of consumers because of the fees and privacy infringements.

        • NIBB

          Unless you are a scammer (buying with your credit card and then requesting reversal or refunds) why would the normal consumer care?

          Bitcoin is like cash. Once you gave someone a 100$ dollar bill at a restaurant, its gone. You have to ask a refund if you want it back. You can’t virtually reverse it like with credit cards.

          Does this means people will stop using cash because they can’t reverse it? No. People also use bank wires all day and they can’t be reversed either. The reason why credit cards have that protection is because they are open widely to fraud and misuse by third parties (not the cardholder)

          Any real reputable company will refund customers so what is the problem? You ask for it, you get the Bitcoins back. Nothing lost. Exactly like cash.

          Sure there are scam companies, but there are more scam consumers. The chances of finding a company which is legally established, has all the papers in place and paid their taxes that decides to scam customers by not honoring refunds is small to none. The chances of consumers scamming companies is HUGE. Actually on the Internet it’s a loss most companies calculate between 1% and 3% of their total sales. This is how much companies loss today with credit card frauds.

          If you are following me here, it means that chargebacks and bank reversal are mostly used by consumers to scam companies. They order a product or service, then go to the bank and ask their money back.

          The only people that want credit card protection as a feature are usually scammers. Otherwise why in the world would you go to your bank to ask a refund instead of the company where you purchased something? Because you are a scammer. And for those that say, illegal charges on my card, that is a problem with credit cards, they are insecure, and Bitcoins are not, credit card needs those protections because they suck for the Internet. Bitcoins are like cash, if you lose your wallet you can’t complain with anyone. If you lose your bitcoins, its like losing cash. Same thing. If you happen to wire 1000$ to someone random guy and lost your money, you are an idiot and you where scammed. Again same with bitcoins, you would not wire money or send cash to someone you don’t trust.

          Again, companies scamming people with bitcoins are slim to none, if you keep yourself with real brands and not just some random guy on the Internet. As opposed to consumers scamming companies with credit cards, which is huge right now. Banks actually make a killing profit with fraud, so they are not interested in making a better system, the more fraud the better for them as companies are paying for it, not banks or consumers.

          This is why companies want to accept Bitcoins. In particular for Internet payments. Why would I care if I have third party reversal protection or not when I purchase something? You will not believe how many people actually scam companies, in particular services companies by making purchases and then denying it on the bank.

          Not to mention banks and credit card companies CHARGE companies for this, and they even take days or weeks to send them their money. You see, if you are on the accepting side of money, Bitcoins has absolutely no risks at all.

          For consumers, its not like credit card cards because its not a credit like the name of cards advertises itself. Bitcoins is like a wire transfer or cash. Big flaw comparing it with credit cards which are a loan from your bank to you, and its not even money you have.

          • banerjek

            “The only people that want credit card protection as a feature are usually scammers. Otherwise why in the world would you go to your bank to ask a refund instead of the company where you purchased something? Because you are a scammer”

            I’m guessing you must be about 19 and are totally unaware that stealing cc info is trivial or of hacks leading to tens of millions of credit card numbers stolen. Here’s the deal — credit cards have crazy low security so scammers have no trouble using real data to fraudulently buy real goods. When fraud occurs under the current system, the credit card companies pay for fraud they improperly authorized or merchants pay for not getting things authorized properly. Either way, everything gets worked out with a 5 minute call with the between the cc company and the cardholder rather than make the cardholder contact dozens of merchants to get refunds on real product that was given to scammers. CC companies have calculated that the cost of real security costs more than dealing with the fraud. Fair enough so long as they don’t expect me to deal with the hassle which they don’t.

            Ask your mom or dad how they deal with fraud charged to the card they gave you and they’ll say the same thing.

          • NIBB

            That is your way trying to make a point? By discriminating people based on their age? You think you are clever and smart but yet what you posted shows how ignorant you really are and then trying to be a smart ass on the Internet when you don’t even have a clue how credit card works. Why are you even commenting here? You don’t know how merchant account works, how credit card payments of fraud works and neither you know how Bitcoins work. I read your other comments and it shows exactly that.

            First of all, your comment just validated exactly what I said before. Credit cards are insecure, one more reason for business and consumers to accept Bitcoins or anything else, you are basically saying credit cards are so screwed up that they need special fraud protection. Thank you for confirming that. We know that, reason why we need a better system for Internet payments. Credit cards are clearly not working because they are expensive and companies are the ones paying up all those costs which for the Internet are completely unnecessary.

            Second, you have absolutely no way how credit card fraud works. Credit card companies and banks don’t pay a dime. Read that again. ONE DIME when there is fraud on your credit card. Merchants do. All those nice security checks and fraud systems are paid by the business accepting Visa or Mastercard, not your bank and surely not by you. This is why banks give credit cards away basically for free. They make money on the financing. Consumers don’t pay extra for using their cards on each purchase, actually Visa/Mastercard don’t allow companies to add the processing fees on a sale or advertise them. Why? Because it’s the business paying anything from 2% to as much as 5% (depending on their merchant deal, country, etc) for each transaction, Visa and Mastercard don’t allow surcharges on the final prices because they want to keep making consumers believe the card usage is free. Its not.

            So while you happy consumer can use your Mastercard and Visa for free, its not free for each transaction made, its actually amazingly expensive for what they offer to companies, which is nothing, not at least in terms of security. It’s the business where you purchase something which is paying for your privilege to use that card. They are also the ones paying all the fraud fees.

            A 5 minute call you say? No, if your bank is doing that, they are violating CC rules. Its not a 5 minute call. Its called a charge back and you need to fill some paperwork claiming the reasons you are disputing a charge, which is send by the bank to Visa or Mastercard which then reverses the payment from the business anywhere from a month to a few weeks. They basically take the money from them and give it back to your bank, not only that, the company where the payment was accepted is also charge with dispute fees, so it’s a nice income for banks to actually have fraud, as they can charge those nasty 25$ to 70$ charge back extra fees. You see, when someone steals your credit card and goes to Amazon and buys something with your Visa, not only is Amazon paying for the privilege of accepting your Visa but they then lose the products and the whole money which is reversed from them. Not only that, Visa blames them for accepting the fraud. They basically punish them for their own fault on their awful security system. If a business has enough disputes, they will actually close this merchant account on the bank so he can’t accept payments anymore.

            So not only is Visa and Mastercard charging a business fees to accept their brand card, they are also charging them fraud fees and once fraud happens, it’s the business fault. Nice right? Their systems is so flawed and insecure and once someone makes fraud somewhere, they blame and charge that business for the fraud… That is the protection they give consumers. Its not Visa paying it, they just take the money away from the end receiving party. That is their whole fraud protection. Penalizing others for their own mistakes. If they at least would cover the fraud from their own pockets then you would have a point but this is not how it works.

            The consumer and neither the bank paid 1 cent, nothing, neither did Visa or Mastercard. If someone used your credit card online and purchased for 1000$, you honestly think your bank just gives you the money back from their own pocket? That is absolutely hilarious. Probably a small store or business somewhere just lost 1000$, someone hit them with a fraudulent order, and now they lost the good, plus the money (which is reversed from their bank account) and are also now penalized with a charge back fee, because they where at fault for accepting the card. This is how broken the system is. IT DOES NOT WORK. It surely does not work for online companies.

            Anyone that ever had to deal with this will tell you exactly the same. No disputes, and no charge back is the most appealing feature Bitcoin has for business. Its like cash. There is absolute no risk involved in accepting Bitcoin, but there is a huge risk accepting credit cards, because you will eventually be ripped off by someone.

            But why should I explain it, I’m just 19. Imagine when I’m at your age how much smarter I will be I have to teach you things so young already. Now go on and scam someone line with your credit cards, then call your bank on the phone to dispute it, since based on your comment it seems you already know the modus operandi on how that works.

          • banerjek

            tl;dr

            If you want people to take your wisdom seriously, stick to pontificating on things you actually know about. Just as you could tell in one second if someone spouting off about video games had no clue as to what they were talking about, it’s obvious your knowledge on this subject comes almost entirely from web pages written by people who might understand the technology, but don’t understand the value proposition for CC’s either from the business or consumer perspectives and your views on how money works is based mostly in ideology.

            If CC’s don’t deliver sufficient value to the business, they won’t accept them (and many don’t). Cryptocurrency has a role to play, but not in the way Bitcoin evangelists seem to expect. Blockchain has far greater disruptive potential, but my guess is that you couldn’t appreciate how much without being told by others.

          • NIBB

            My wisdom comes from losing hundreds of thousands of dollars from credit card fraud in the past 10 years. I’m still wondering why only credit cards are risky to accept in 2015. I never lost money with PayPal, or wire transfers, or Western Union, or Bitcoins or any other payment system. So yes, I would say accepting credit cards is expensive and risky.

            From the consumer side, I owned at least 10 credit cards. I had at least 5 of them compromised in the past, because some website where I used them was probably hacked, they spend thousands on them and it took me 3 months to recover some of the funds. From that point on, when I see a business which accepts PayPal and another one which only accept credit cards, I choose the one that accepts PayPal every single time. The more places you use your credit card online, the more chances some of those websites will be hacked eventually and your card leaked. As you keep using your credit card online risks increases, you made one purchase on one website, its fine, but if you use the card on 100 different websites, your risk chances increased by 100 now. All you need is one, one single website or company hacked. So as a consumers I learned to avoid using credit card as hell.

            My experience with credit cards comes from both sides, accepting them and using them. And I can tell you that credit cards are absolutely terrible for the Internet, both from the consumer side and from the business side. I have absolutely nothing against Visa or Mastercard but I find it absolutely amazing that they can’t come up with a system where users have to approve purchases using a code or password (they tried and it never worked) similar to PayPal or other system for each purchase. I find it incredible that Visa, Mastercard, American Express and others with all their resources and all their technology can’t come with a way to make their cards secure online.

            The reason is they are not interested in making them secure. Fraud is a big business for them, since the money from online fraud is paid by companies and not banks and not credit cards and not consumers, they don’t care. And since almost everyone has credit cards, business are forced to rely on them. You can absolutely trust me when I tell you that if companies could avoid accepting credit cards they would.

          • banerjek

            I totally agree that security with CC’s, bank cards, and most financial dealings is total crap. I also agree that PayPal is way better and I also choose that option whenever I can for the same reasons you do (though PayPal adds additional costs for the value added. I frequently complain to all companies that I deal with that don’t provide multifactor authentication. I agree they don’t care, largely because the costs of the lack of security are borne by the victims.

            Like you, I accept CC’s largely because I have to, and no, I don’t like it. But it’s better than the alternative. Among other things, But I have to deal with government and private entities that require dealing with RFQ’s, RFP’s, and which impose far more onerous costs than the CC companies for getting paid. At least when I’m paid with a procurement card, I know I won’t be arguing for months with some brain dead business manager (and govt entities don’t pay late fees even if they’re written into contracts) to get paid.

            While I think cryptocurrencies are hear to stay, there is simply no consumer demand for them and the only way they’ll be implemented is in the background as a more sensible way of handling transactions — I.e. consumers will use them without having any idea of what is going on. I love the concept, but I’m not convinced the answer will be Bitcoin for a variety of reasons even if it played a critical role in getting us where we need to be.

          • bittyyyy

            Bitcoin is appealing for one reason – Block chains.

            The closest thing we have on the internet to untraceable.

            Thats it, with out all the illegal things that bitcoin enables consumers to buy it would be pointless and wouldn’t still be existing at this time, its the only reason.

      • http://www.finance-guy.net/ finance-guy

        And the falling price is why it’s so much better than cash

    • Crypto Currency Swot

      try to buy a product/contract/peace of land or service across the ocean for $ 10 USD with Western Union. You’re left with a penny to do so, because the biggest part out of the $ 10 USD goes to the middle men.

      CreditCards company grew great wealth for themselves. They were the big bad boys, like dinosaurs.

      Nowadays you can send anyone money under 1 USD across any ocean, practically without lost of value.
      You can code it for web shops, dating-sites, pizza of a lover, or flowers, online games or as many other ideas as stars in the sky. Got the point, you little modern dinosaur? ;)

      • banerjek

        I’ve been doing international transactions for decades and know plenty of others who send money. I’m skeptical that the use case for sending small amounts is that great. BTW, if you send anyone bitcoin, they’ll pay a fee to convert it to something they can actually spend.

        • Dimitri Andre

          1percent is all I pay and thats great for me!!!

          • banerjek

            My experience is also that the fees are reasonable. It is soooo much better than it was many years ago.

          • Dimitri Andre

            Not mine and many others when compared to bitcoin remittance to traditional venues like western union or money gram…With bitcoins I can buy bitcoins send it to a wallet like bitreserve or coinapult to lock the the value to send to someone at a later time easily and they could cash out easily at a convenient store or a debit card. Its cheaper and faster way of sending money and thats with the fees of buying/selling bitcoins. Its only getting easier with new financial products that uses the payment network side of it.

      • banerjek

        If bitcoin really is so great, how come people who understand it so well don’t use it themselves except as an investment vehicle? After all, thousands of businesses accept it. And when you sell things, you can take payment only in bitcoin, passing on the savings to the customer which gives you a clear competitive advantage.

        The reality is that if you start selling SIMs for 0.03671586 including international shipping, few bitcoin geeks can tell whether that’s a good deal without the aid of a calculator. Normal people will just scratch their heads.

        Cryptocurrency (of which bitcoin is only one) potentially serves real needs that aren’t addressed as effectively as they could be. But that’s very different than thinking bitcoin even has the potential to replace the world’s money supply.

        If you don’t find it compelling enough to actually use as currency, why would you expect others to? And if it really is the wave of the future and you are on the leading edge, you really should put every dime you have in bitcoin. With a potential pool of only 21 million coins, the entire net worth of all but the richest individuals will be less than 1 BTC if this takes off.

  • Steve

    I disagree with the idea that a crash will not have long term impacts. As a mining pool operator, we can’t make enough profits from our fees to remain profitable enough to justify not taking full time jobs in another industry when prices are this low. Since bitcoins are volatile, we will take losses for a few months in the hope that a recovery occurs, but at some point we may have to cut our losses and shut down.

    Using this example, even if a recovery occurs, we won’t return, because we’ll already have moved to a different city and gotten jobs in another industry. Even if we wanted to return, we simply won’t have the money to do so, having lost money operating at a loss for some time. Even if I would want to work 80 hour weeks for another 1.5 years, it would be years of working a normal job before we would have the capital to try again.

    A bitcoin crash is very serious for the industry, and people who try to say that “the price doesn’t matter” are mistaken. When there is a stock market crash, people who lose money in stocks can’t buy other stocks; they simply are removed from the economy and can no longer participate. The same is undoubtedly starting to happen here. The longer that price stays low, the more likely it is that bitcoin companies are going to start to fail. Because a high price is necessary for high velocity, exchanges will be some of the first to fold, as they can’t make money off of low volume. Without exchanges, people can’t get bitcoins, and we could enter a downward spiral.

    The price does matter very much.

    • john

      Mining technology will improve and price will fluctuate badly for many more years. It helps to distribute coins equally. It will not be a smooth ride by any stretch of imagination.

    • Mtsothm

      One positive feature of the Bitcoin protocol is how the difficulty of mining Bitcoin adjusts, roughly based on the amount of competition that exists in the Bitcoin mining market. As financially weaker market participants leave the market, mining will become more profitable for those that remain, as mining difficulty is proportional to the costs associated with mining.

      • Steve

        Two comments on this.

        First, this works for miners, but not for mining pools. A mining pool makes money solely based upon the price of the currencies it mines, not based upon the difficulty of the currencies. We are concerned only with altcoin and bitcoin prices; whether any individual miner can afford the difficulty changes or not is not relevant to our business.

        Second, mining profitability is delayed from the price changes. In December, I had three GPUs making about $105/day mining altcoins. I was shocked how nobody seemed to care enough to fire up GPUs to mine those coins, seeing how easy it was. Now, an equivalent percentage of the litecoin network’s hashrate earns less than $1.00 per day.

        I think that we already have code that can beat all the other pools in profitability. Our business model is essentially to get this working perfectly, and then to wait until the next bubble happens. We will be prepared to make huge money during the period immediately after the bubble, while the people who decide to start pools then will need 9-12 months to get them developed and set up. The only way to make money in this industry is to perform development when things are looking down and hope they come back up.

        That said, the opportunity costs we are incurring are astronomical. A good software engineer can make $90,000/yr. If the next bubble doesn’t happen until July, that means we have lost $45,000 plus about $6,000 in living expenses per employee, which is a lot.

    • Marvin Martian

      I have a small/tiny mining operation, and I turned it off this weekend after 2 days straight of losing money.

      And as you say, I’m considering leaving crypto and going back to Real Estate. When I’m gone, I’m gone. Not coming back.

  • Neal Palmquist

    -“Let me see your identification.”

    -[with a small wave of the hand] “You don’t need to see his identification. This is a decentralized and anonymous currency”

    -“We don’t need to see his identification.”

    -“These aren’t the droids you’re looking for.”

    -“These aren’t the droids we’re looking for.”

    -“There is no reason for you to be concerned about everyone losing their money.”

    -“There is no reason for me to be concerned about everyone losing their money.”

    -“Keep on buying bitcoin.”

    -“I will keep on buying bitcoins.”

    • Crypto Currency Swot

      big brother wants you to carry more USD cash around, right? keep on typing, funny guy.

    • Nealson Idiotquist

      Yes I agree, bitcoiners are like Jedi

      • banerjek

        More like Ewoks

  • Neal Palmquist

    This crash is a disaster. The price needed to return to $450 to trigger a double bottom confirmation that would have set off a frenzied rally back up to $666. Now there will be no double bottom confirmation for a long time because we haven’t seen the first bottom yet.

    So everybody is going to lose lots of money

  • Chris

    Carter, I’m not constipated anymore!

  • Neal Palmquist

    Look at the chart! So impressive!

    But how come bitcon suicide cult flower children read these charts from right to left?

    • inpips

      All you do is read articles about Bitcoin!!

      LMAO

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