Was 2014 The Death March For Bitcoin?

Bitcoin Tracker | Week 54          

Who could argue that 2014 was anything but a wild year for bitcoin. It started the year trading at 777.73 according to the PYMNTS.com bitcoin price index and will close at 307.26 After its sharp descent in February, bitcoin just never seemed to get its mojo back. It will end the year being less stable than the ruble, a reputation that it earned for being anywhere from 15 to 70 times more volatile than the euro over the year, according to the PYMNTS.com Bitcoin Volatility Index.

A reoccurring news item for bitcoin in 2014 related to one of two predominant use cases for bitcoin – the purchase of illegal goods and services and the sites that emerged to cater to its patrons. (The other use case, of course, is hoarding in the hopes that the value will increase.) Silk Road 2.0 launched in November 2013 and in February of 2014, was hacked and stripped of roughly $2.6 million worth of currency. That led to the arrest and sentencing of Charlie Shrem who would later in 2014 be found guilty of money laundering over $1 million dollars to the Silk Road to make illegal purchases.

Another by-product of the Silk Road shut-down was the confiscation by the U.S. Federal Marshalls and subsequent auction of the bitcoins it seized. Two auctions of ~80k bitcoin have already taken place (In June Tim Draper was the highest bidder, paid an undisclosed amount for 30,00 bitcoins and in December, the number of registered bidders decreased by 75% while the number of bids fell by 57%) with ~94k still available to the highest bidder.

Later in the year, the stability of bitcoin was threatened by GHash.IO, a bitcoin mining pool, that controlled more than 50 percent of the total computing power of bitcoin. While the group claimed that they would behave, there was the threat of a “51 percent attack” on the cryptocurrency where they could potentially interfere with bitcoin transactions. And, why everyone who isn’t focused on the risks associated with having the world’s money moving across an unregulated, distributed network of miners and exchanges, well, should be given this potential scare.

Additionally bitcoin continued to fight for legitimacy, in China, India, Thailand, Germany, Russia and the United States among others without much forward progress. For a while, it seemed that Australia might be open to bitcoin however bitcoin was hit with a tax blow in December when bitcoin was labeled by the Australian Tax office as not a currency.

Despite the difficulties, merchants, payment processors and services announced their decision to accept bitcoin for payment (often with the help of a bitcoin payment processor). Some of the notables names include Microsoft, PayPal, Dell, Chicago Sun-Times Overstock, Newegg, Shopify, DigitalRiver, Monoprix, Expedia and REEDS Jewelers.

VCs continued to dump millions into new bitcoin innovators, including 500 Startups, the Bitcoin Opportunity Fund, Tim Draper, Reid Hoffman, Khosla Ventures, Crypto Currency Partners, Lightspeed Ventures and more.

So what 2015 will bring? Those that are bullish about bitcoin market may share the beliefs of Keith Gilabert of Fina V Capital, who makes the interesting prediction that “Bitcoin could rise significantly [in 2015] as currencies around the world and oil prices continue to weaken. Bitcoin is the new alternative to gold”.

Among those that are in the bear camp include Henry Farrell at The Washington Post who argues that any suggestion of Bitcoin succeeding as a financial network will be crippled by Government. And that Bitcoin could only survive at the margins, where it would be isolated, and in no position to threaten Visa or Mastercard, or the underlying payment and messaging services that underpin the world financial system as it stands today. Then there’s The Oracle of Omaha who has one four letter word for bitcoin – joke.

We will have to wait and see.

The last week of the year saw bitcoin come close to dipping below $300 for the first time since WHEN. It fell to 307.94 from 326.46 according to the PYMNTS.com Bitcoin Price index.

As always, if you have any news you’d like to share, please send it our way at contactus@pymnts.com.

On the Plus Side …

Could diamonds be bitcoin’s best friend? Online jewelry and diamond dealer, iDIAMOND has paired with BitPay to accept bitcoin for payment. And, the Bitcoin Bowl in St. Petersburg, Florida brought a lot of (much needed) positive press to bitcoin this week, however the focus was primarily on the university football bowl game. New York City with an antiquated parking system that issues between eight and ten million tickets per year is floating a new plan that will allow drivers to pay their tickets using bitcoins and their smartphones.

• December 30, 2014 – iDIAMONDS is now offering diamond rings for bitcoins.
• December 27, 2014 – Russia’s Ministry of Economic Development didn’t approve of the bill to ban cash equivalents, including electronic money and bitcoins. It said the proposed ban could hit major telecom operators, retailers and banks hard. Really?
• December 27, 2014 – Bitcoin supporters are hoping that 2015 will be bitcoin’s big year.
• December 26, 2014 – NYC is requesting information on using bitcoin to pay for parking tickets.
• December 26, 2014 – North Carolina State beat Central Florida in the 2014 Bitcoin Bowl.
• December 26, 2014 – Bitnplay, bitcoin’s only poker site will launch in February 2015.
• December 26, 2014 – There was a massive growth of of bitcoin ATMs in 2014.

On the Dark Side … 

The Oracle of Omaha has a four letter word for bitcoin – joke. Yes, Warren Buffet has spoken and he says to stay away from bitcoin, with some very strong language. And when he speaks, people generally listen. More negative reviews came from a Bloomberg columnist who believes that most of the supporters of bitcoin are hackers who resources depend on the Ponzi scheme nature of bitcoin.

• December 29, 2014 – An extortionist has been threatening early adopters of bitcoin, including someone that is battling Lou Gehrig’s disease, for an extortion fee of 1,000 bitcoin.
• December 29, 2014 – A hacker that goes by the name of Bitcoin Baron crashed Columbia, Missouri municipal website.
• December 28, 2104 – Bloomberg View columnist and member of the Bloomberg View editorial board Mark Gilbert, says “most of Bitcoin’s supporters [s]eem to be hackers whose resources depend upon the Ponzi-scheme nature of the enterprise itself”.
• December 28, 2014 – Bitcoin is the worst and most poorly preforming “currency” of 2014.
• December 26, 2014 – Warren Buffett gave a warning to investors to avoid bitcoin saying “Stay away from it.  It’s a mirage, basically… It’s a method of transmitting money.  It’s a very effective way of transmitting money, and you can do it anonymously and all that.  A check is a way of transmitting money, too.  Are checks worth a whole lot of money just because they can transmit money?  Are money orders?  You can transmit by money orders.  People do it.  I hope Bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways, and it will be.  The idea that it has some huge intrinsic value is just a joke in my view.”