This question originally appeared on Quora: Is the price of Bitcoin going to bounce back?
Answer by Henry Berg, Engineer, on Quora
All of us who are interested in bitcoin follow the price in one way or another. It is, after all, a very clean and simple indicator of how bitcoin is doing. But given that the price of bitcoin is determined solely by supply and demand, and that the supply of new bitcoins is predetermined, with new coins being issued steadily at a rate that drops sharply in the future, the only variable of interest is demand. And the demand for bitcoin is determined by how useful bitcoins are to people. So if you want to know whether the price of bitcoins will go up in the future, you have to ask yourself how useful you think bitcoins are going to be. Bitcoins are an almost pure example of an ideal online currency, with almost flawless fungibility, divisibility, portability, scarcity, durability and un-consumability. But to somebody who already has access to modern financial tools like bank accounts and credit cards, there are very few new things bitcoin has to offer. The compelling uses for bitcoin so far are to serve as a vehicle for speculation, i.e., a ticket for the roller-coaster ride of the last few years, and as a method of gambling and making purchases on the dark markets. For traditional purchases, the merchants pay all of the fees and bear all of the risks of credit cards, so a modern consumer has no incentive to use bitcoin for such purchases. That may change, but until merchants find some way of offering a discount for the use of bitcoin, bitcoin demand is dependent on the discovery of new uses.
There are several uses of bitcoin which people are pretty excited about. Bitcoin allows cross-border transactions over the internet, which could include business supply-chain payments, international remittances, and online orders from people without credit cards. Bitcoin allows micro-payments for online services, including automated payments, which may create a whole bunch of different uses. In theory, merchants should love bitcoin, which can be processed, kept or sold with low fees, eliminating high credit card acceptance fees and getting rid of the scourge of credit card chargebacks altogether. Look at all of the scandals about leaked credit card information, the subsequent horrific PR messes, and millions of customers having to replace their credit cards because a merchant gets hacked. With bitcoin, the merchant might lose some money if they screw up, but their customers are unaffected no matter what. This is just the payment uses of bitcoin that we've looked at so far.
Bitcoin can also be used to leverage the underlying blockchain. Several services are looking at ways to commit a hash value to the blockchain, usually spending a small amount in bitcoins in fees to do so. Others are looking at ways of having bitcoins represent the ownership of real-world assets in different ways. All of these services require bitcoins in some way or another.
Lastly, look at the massive funding that has gone into Coinbase, Circle and 21, inc, along with many other bitcoin companies. I think it is a pretty safe bet that all of these factors are going to put upward pressure on bitcoin prices. Many are arguing that bitcoin prices are going nowhere but down since the peak at $1200 in late 2013. I would argue that sure, there was a massive speculative peak, but bitcoin has been trading steadily at $200-$300 for the last several months. The efforts people are putting into mining bitcoin have not pulled back at all. And in the third quarter of 2016, the rate of new coin issuance drops by half, from the current 3600 coins/day to 1800 coins/day. Everybody can make whatever choice they are comfortable with, but I am very comfortable being long on bitcoin, and I'm going to remain so.
Is the price of Bitcoin going to bounce back?: originally appeared on Quora: The best answer to any question. Ask a question, get a great answer. Learn from experts and access insider knowledge. You can follow Quora on Twitter, Facebook, and Google+. More questions:
- Economics: How can one become part of the 1%?
- Bitcoin: What will happen in Bitcoin in 2015?
- Cryptocurrencies: What are the future consequences of the concentration of Bitcoin wealth in the hands of a few?
