Bitcoin’s Emerging Price Stability

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Earlier in January Bitcoin, as it receded as recipient of an infinite press, began to see its trading range tighten after months of wild swings. I pointed this out as perhaps the start of new stability for Bitcoin, which in turn could help its platform mature, or indicate maturation thereof.

There was some squawking that the time frame I had selected as ‘enough’ to indicate a trend was too short. It was a reasonable complaint. Happily, Bitcoin has behaved and exonerated me by tacking on another tranche of time of generally stable prices.

The gist is simple: For nearly the entire month of January Bitcoin has traded in the 900s, with minor exceptions in 1,000s. For a currency that until very recently could see 50% of its value drop in a day and not have that day stand out all too much, it has been something of a calming of the seas.

Here’s the D1 chart you need (Mt.Gox data via Clark Moody):

Screen Shot 2014-02-01 at 12.27.08 PM

The white Y Axis here points to the 6th of Janurary, when things calmed down.

Why does it matter if Bitcoin is seeing increasing price stability? Essentially the more wild the swings in its value, the less useful Bitcoin is as a tool of commerce. This goes both ways: The more real uses there are for Bitcoin, the smaller the percentage of speculative trades in the currency; and, the smaller the changes in its price, the more people may start to accept Bitcoin as a payment option. It’s a self-reinforcing cycle.

Marc Andreessen recently summed this well: “Bitcoin is a classic network effect, a positive feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it, and the higher the incentive for the next user to start using the technology.” Marc’s piece — it’s mandatory reading, by the way — lays out a bullish case for Bitcoin arguing that its core technological tenets provide large incentive for its use, which will drive adoption and long-term use.  

Bitcoin volume on the Mt.Gox exchange is down sharply this year, a change I think that is roughly commensurate with the currency’s decline in media attention. If you were hoping for Bitcoin to shape up and fly right, it was a banner month.

Top Image Credit: Flickr (Image cropped)