2014 was a terrible year for bitcoin. Well, for the price. It fell 67%, from $800 a coin and to about $320. It was the world’s worst performing currency, beaten even by the Russian ruble and the Ukranian hryvania…
So far in 2015, things have got no better. At one stage last week it had fallen by another 47%, to $170, though the price has since rallied to around $210. Bitcoin was almost a laughing stock. So what can we expect in 2015? More of the same? Or something else?
The answer you don’t expect
I’ve written a best-selling book on bitcoin. I keep getting asked to do interviews and talks about it. I think bitcoin is a fantastic invention that took real genius. So it might sound odd when I say I’m not particularly bullish about the price. In fact, if anything, I’m bearish – I think it could go a lot lower. If you wanted me to put my money where my mouth is, I’d bet we’ll see $100 a coin before we see $400.
When the price got to $1,240 in late 2013 and a bitcoin was the same price as an ounce of gold, speculative fever had got crazy. It had risen by over 1,000% in a matter of weeks. Every Tom, Dick and Harry was building his own currency. People were talking about it in a way that bore no resemblance to reality. It was a bubble. And bubbles, once they pop, can take a lot of getting over.
Just look at the Nasdaq. Even with serious, cash-generative companies such as Apple and Google listed on the exchange, and all the gains that US stocks have seen over the past three years, the Nasdaq is still trading below its year 2000, Dotcom bubble highs. But, just like the Nasdaq, there is a lot more to bitcoin than its nominal price.
I wasn’t bullish about the bitcoin price when I wrote my book, and I’m not now. But I am extremely excited about bitcoin.
What’s been happening behind the scenes
Bitcoin is growing, perhaps not at the speed which its most ardent enthusiasts would like, but it is growing nonetheless. We are past the initial excitement phase and now on the long, slow climb. The numbers, as outlined in Coindesk’s latest State of Bitcoin report, are compelling.
The number of bitcoin wallets grew from 3.2 million at the beginning of 2014 to 8 million by yearend. 12 million is the end-of-2015 forecast.
The number of merchants accepting bitcoin rose from 36,000 to 82,000, with 140,000 forecast for 2015.
Other large corporations have joined Virgin Galactic in accepting Bitcoin - Microsoft, Dell and Time, for example. At the beginning of 2014 there were just four bitcoin ATMs. Now there are over 340. 750 is the forecast for year end. (You’ll mostly find these in independent shops and cafés, by the way).
What’s perhaps most exciting of all is the venture capital that is pouring into the sector – and it really is pouring. $98 million was invested in 2013. $335 million was invested in 2014. This was happening despite the falling price. VC investment in Q4, 2014, was double that of Q3.
About 70% of that investment comes from the US and Canada, about 23% from Europe and 7% from Asia. Asian investment, to me at least, is surprisingly low given that China is responsible for the lion’s share of daily bitcoin transactions.
The place that’s ahead of everywhere else
There is one region, in particular, that is way ahead of the curve on bitcoin investment – and no prizes for guessing where. Silicon Valley alone is responsible for about 30% of bitcoin venture capital. These people are not stupid. They can see beyond the falling price, they can see beyond the fact that bitcoin is out of fashion (mainstream mentions are down by over 75%), they can see beyond the ridicule of last week - just as internet investors could post-2000.
It’s worth noting also that by 1995 $250 million had been invested in internet start-ups. Bitcoin is already ahead of that.
Most recent investment has gone into financial services with the Blockchain deal – in which Virgin played a part – the most notable, raising $30.5 million. But there are all sorts of new companies spring up. It’s estimated there are now 590 altcoins, for example.
So to 2015. I’m not particularly excited about the price, as I’ve already suggested. The initial excitement phase of bitcoin is over. Now it’s on the long climb to mainstream adoption. We’ll see more capital investment, a gradual increase in usage and, most excitingly of all, more and more companies and ideas springing up to exploit that genius tech behind bitcoin, known as the blockchain. (I suppose you might describe it as a supersonic database). 2015 will be all about Bitcoin 2.0.
Here are some companies that are already starting to stand out
There’s Gems, the decentralized (and thus private) social messaging app (decentralized social networking and communications are going to be huge). Codius is making progress with smart contracts – computer systems that replicate contracts and thus obviates the need for lawyers (another area with huge and obvious growth potential). Codius is also doing interesting work in the field of decentralized apps and peer-to-peer hosting. And there’s Ethereum, which I have mentioned on these pages before, is developing its own blockchain.
So forget the price and watch the tech. That’s where the fireworks will be. It’s all very exciting.