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.
