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Summary:

Just the week, bitcoin payment options have been springing up everywhere from newspapers to sports teams. But why is the price still dropping?

In this week’s bitcoin review, we recap how bitcoin is becoming a payment option in more places, which would be a good thing except for the falling price.

Is bitcoin inching closer to widespread acceptance?

If you’re trying to sell some bitcoins before the tax deadline — or just want to use them in your everyday life — it’s becoming much easier. We’re starting to get press release after press release about a new company that accepts the cryptocurrency. This week it included the Chicago Sun-Times, the first newspaper to jump on board, and the Sacramento Kings, which released a bitcoin-only store for its merchandise. Virtual currency even became its own section of goods on Ebay (although it’s not an approved payment method yet). The largest company to come on board this week was the Square marketplace.

Yet the way the market has been behaving doesn’t exactly instill confidence in the currency’s value. No business wants to accept bitcoin then immediately have the currency be worth $10 less a minute later. The products that are going to be more attractive to entrepreneurs are the ones that immediately convert bitcoin into whatever the businesses preferred tender is — at least until the market fluctuates less frequently. However, the increased merchant adoption could be hurting bitcoin momentarily as a result.

Vinny Lingham, the co-founder and CEO of Gyft, had the best explanation for how merchant adoption outpacing consumer adoption could be impacting the bitcoin market right now:

Although many Bitcoiners are hoping for more large retailers like TigerDirect and Overstock to adopt Bitcoin, it may have a negative impact on the BTC price as these retailers will most likely convert 90% of their coins to cash — putting additional selling pressure on Bitcoin. This outcome may not be as desirable in the short term, but it will create a better long-term outlook for Bitcoin given the liquidity options. Again, if you asymmetrically add large retailers without driving consumer adoption at the same time, the demand supply curve will shift undesirably.

As the number of transactions via Bitcoin processors increase, it ultimately creates more sellers in the marketplace — which obviously creates downward pressure on the trading price. Now, I’m not saying that this is a bad thing in the long term, but the problem is that if you have asymmetric growth in new Bitcoin users and Bitcoin “acceptors”, it will create a lopsided marketplace which will suppress the price — which is exactly what is currently happening.

While merchants are starting to trust the cryptocurrency, the bitcoin community is going to have to rely the consumers to start spending and storing their money in the cryptocurrency, and not just immediately cash out.

The market this week

Bitcoin continues its downward slide, only hitting above $500 for a moment on last Friday. It ended the week $30 lower as of closing price Thursday night. As of 10a.m. PST though, bitcoin had dropped to $443.
Bitcoin price 4.4
For background on why we’re using Coindesk’s Bitcoin Price Index, see note at bottom of the post. 

In other news we covered this week:

  • PayStand came out of beta with its e-commerce service to take on PayPal and make it cheaper to buy goods with bitcoin rather than credit cards.

Here are some of the best reads from around the web this week:

  • Reuters published an exclusive interview with former MtGox employees who had allegedly been questioning where the money was going since early 2012. Among the red flags was the purchase of 3-d printer, a robot, a Honda Civic imported from Britain and high-rise office space in the same building that housed Google and Hulu.
  • Forbes: “Bitcoin could strengthen the world economy if Washington doesn’t destroy it.” A good piece on why politicians and government agencies need to present a united view of the currency/property and not view it as both.
  • The deflation problem won’t kill bitcoin, but it will keep it from displacing traditional currencies, according to The Economist.

Bitcoin in 2014

The history of bitcoin’s price


A note on our data: We use CoinDesk’s Bitcoin Price Index to obtain both a historical and current reflection of the Bitcoin market. The BPI is an average of the three Bitcoin exchanges which meet their criteria: Bitstamp, BTC-e and Bitfinex. To see the criteria for inclusion or for price updates by the minute, visit CoinDesk. Since the market never closes, the “closing price” as noted in the graphics is based on end of day Greenwich Mean Time (GMT) or British Summer Time (BST). 

Featured image from pond5/stevanovicigor

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  1. Kenton Sallee Friday, April 4, 2014

    Merchants adding selling pressure makes sense, but there’s also some speculation on China as well as day-trader “whales” playing the system. A logarithmic trading view which many traders use shows a “channel” that the bitcoin price has been following…the ~$400 exchange mark should be the bottom of the last bubble from their view, but of course who knows what will happen! Good synopsis of some of the factors, thanks for the article.

  2. It seems the sentiment of Bitcoin being widely used is heading to wall street too according this article We Are On The Verge Of Bitcoin Mass Adoption http://seekingalpha.com/instablog/24409233-piperjaff/2807053-we-are-on-the-verge-of-bitcoin-mass-adoption

  3. TerminalSanity Friday, April 4, 2014

    Why are so many people afraid to admit the obvious? The Bitcoin model is fundamentally flawed. Of course the price is volatile it will always be volatile its a completely unbacked currency, worse still the anonymous electronic nature couple with the near non existent cost to transfer it makes manipulating its price extraordinarily easy to do.

    1. TerminalSanity,

      So you think that the U.S. dollar is “backed”? Then you have not been paying attention to the trillions of dollars printed out of thin air? At least crypto currencies have an inherent antidote to politicians resorting to grossly inflating the currency to save their own asses (in the short term). Perhaps you are looking forward to the U.S. soon looking like Germany before WWII where a wheelbarrow full of Marks had a value less than wall paper.

  4. Solustech XxoxX Saturday, April 5, 2014

    I still think bitcoin remains to unstable to be adopted by general consumers, I mean Look at this chart http://bitcoin-value-live.com/charts.php bitcoin lost about $200 in one month and about $100 in about a week, and businesses who will have to deal with bitcoin would have twice much work to work around prices day on day offf

    1. Any business that doesn’t want to deal with the risk, or can’t afford to, can still accept them and have the sale instantly converted to dollars. There’s a service for that.

  5. Cryptocurrencies are great, but Bitcoin is overpriced and competition is coming. Whatever Bitcoin can do, DogeCoin can do faster, cheaper and better!

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