When it comes to figuring out the main reason why every brick and mortar store in your local town is not accepting bitcoin as payment, you don’t need to look much further than price volatility. There are plenty of people who like the idea of a decentralized currency not controlled by any government, but the reality is that these same people only want to accept currencies that are relatively stable. After all, a store cannot plan for the future or pay for supplies, employees, and other costs when they don’t know what the value of each sale will be after only a few hours have gone by.
How Can Bitcoin Price Stability Happen?
Sure, there are more companies accepting bitcoins on a daily basis, but most of these businesses are instantly converting their bitcoins back to dollars with a service like Bitpay or Coinbase. For the bitcoin currency to takeover the world, more people are going to need to be able to rely on it as a proper store of value. The most obvious way for that to happen is to see the bitcoin market cap rise to much greater heights. This way, it would take much more money to move the price one way or another on the exchanges. There are three main reasons we could see this phenomenon take place in the near future, so let’s take a closer look at the future of Bitcoin price stability.
- Regulatory Clarity – Bitcoin has only been on the radar of most governments for about a year, and they still aren’t sure what to make of the digital currency. The price crash in December of 2013 was partially due to conflicting reports out of China where some people thought that the largest country in the world was going to ban Bitcoin for good. Any kind of new bulletin or warning from a government can move the price all over the place right now, so it’s important to get some clear regulations from all of the larger governments around the world as quickly as possible. Once the likes of the United States, European Union, China, Russia, and others all have clear stances on whether or not people will be allowed to own and trade bitcoins in those jurisdictions, we should see less panic selling due to the words of a government official. Investors with real money want to know that their investment is not going to evaporate due to changes in the laws surrounding Bitcoin.
- Bitcoin Remittances – The first industry that is definitely going to be disrupted by Bitcoin is the international remittances market. Western Union is aware of Bitcoin, and they would be wise to implement it into their payment services platform sooner rather than later. There’s no reason to pay Western Union 10% or more of a money transfer when the Bitcoin network can handle it for practically free. The global remittance market surpassed the $500 billion per year mark in 2012. This is serious money. Having said all that, international remittances don’t really increase the price of bitcoins if a person is buying bitcoins in one country for another person to sell in their home country. Money is going into the Bitcoin network and then back out of it, so there’s no real change to supply and demand. What we could see is families who receive their remittances from their breadwinners in other countries begin to hold bitcoins instead of converting them to their local currency. If local merchants are accepting bitcoins and the local currency is in an inflationary spiral, then there will be no reason to pay a fee and have those bitcoins turned into fiat currency. India definitely fits the mold of a country that could benefit from this situation because they hold a $68 billion share of the yearly remittance market while also dealing with annual inflation over 10%.
- Bitcoin 2.0 – If you have not read about the new features that are currently being built on top of Bitcoin, then I highly recommend my article on Bitcoin 2.0. Decentralized financial markets are being created in the Bitcoin space, and bitcoins are going to be the portal to trading everything from gold to shares in new tech startups. If anyone wants to interact with the various decentralized exchanges or distributed autonomous corporations, they are going to need bitcoins. The success of any new service or technology that borrows ideas from Bitcoin is going to be somewhat tied to the price of the bitcoin.
Can Bitcoin Be Stopped?
The above three scenarios are definitely bullish for the bitcoin, but there are still a few different problems that could pop up. Government regulation could definitely slow down progress for Bitcoin in the short term, but efforts to shutdown Bitcoin could be as futile as shutting down Bittorrent. Cryptocurrency is nothing more than an idea, and no army can stop an idea whose time has come. Although a government would probably not be able to destroy Bitcoin, it could be destroyed from within by a bug in the source code that has yet to be spotted. This is extremely unlikely because the world’s best hackers have been looking over the Bitcoin source code for years without being able to find that fatal flaw. The last thing to think about when it comes to stopping the honey badger of money is competition. Mastercoin, NXT, and a few other altcoins have some features that are not currently available with Bitcoin. Hungry developers and entrepreneurs who would like to see their currency go from zero to where Bitcoin is right now have much more to gain than the “Bitcoin-elite” innovators who already made more money than they could ever need. It would take an astounding list of features to topple Bitcoin’s network effect, but it is not yet completely out of the realm of possibility.