In this week’s bitcoin review, we take a look at a new research report that analyzes bitcoin’s market drivers.
Data mining shows bitcoin’s market movers
One advantage of bitcoin’s public ledger is that the data — number of transactions, amount, bitcoin supply — is all there and available to the public. Ladislav Kristoufek at the Charles University in Prague, Czech Republic, decided to take advantage of the data to try to investigate some of the most widely held ideas regarding what moves bitcoin’s price up and down. In his research, Kristoufek was able to identify a few things that appear to drive the bitcoin price market, but also discard some other theories.
First, Kristoufek eliminated two popular theories: that it’s an investment vehicle and we should blame China. Kristoufek found that bitcoin doesn’t seem to be a safe haven investment like gold nor does the Chinese market influence the USD one. While a lot of the extreme drops and increases coincide with the Chinese regulation or dramatic events within China, Kristoufek found no relation between the Chinese market volume and the USD price although they do move together.
However, while bitcoin is a speculative market, it does react to traditional market measures like usage in trade, money supply and price level in the long term. Bitcoin is also technologically driven by the mining community, although Kristoufek found that the mining community’s effect on the price is playing less and less of a role as it became harder to mine bitcoin.
The price also reacts to investment interest — something we may be seeing happen right now. CoinDesk reported today that VC investment is already up 30 percent from last year’s total investment. The report from CoinDesk statistics said $113.2 million has already been invested this year with some high profile closing rounds, like BitPay’s $30 million, drawing interest (and maybe driving prices) of the cryptocurrency.
The market this week
It’s been another good week for bitcoin. There were a couple dips, but overall the price climbed to $656.06 at closing on Thursday, $40 above last week’s closing price. It remained steady around $654.12 as of 10:15am PDT.
For background on why we’re using Coindesk’s Bitcoin Price Index, see the note at the bottom of the post.
In other news we covered this week:
- The Securities and Exchanges Commission (SEC) charged Erik Voorhees for selling unregistered securities as operator of the bitcoin betting site SatoshiDice and a marketing site FeedZeBirds.
- Looks like Apple is ready to play nice with virtual currencies, for now. An update to its terms of service looks like it may be willing to accept virtual currency applications in its App Store and some apps, like CoinJar, have already reappeared.
Here are some of the best reads from around the web this week:
- Bitcoin’s anonymity is complicating divorce. A lawyer is arguing that digital currencies should be included in financial disclosure information — although it remains hard to tie accounts to individuals, according to the Financial Times.
- From Wired, modern day coin collecting now means altcoins like litecoin, leafcoin and infinite coin.
- An alternate way to profit off bitcoin may be to invest in the stocks of the winners of the bitcoin revolution (like Overstock) rather than the losers (like Western Union), said Alex Pitti at Seeking Alpha.
- In things you can buy with bitcion this week: 50 Cent’s new album, an attorney and some sandwiches in Melbourne.
Bitcoin in 2014
Bitcoin price is about $100 short of where it started the year.
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).
Photo from Lam Yik Fei/Getty Images