The Bitcoin riddle – The game has changed, but how?

How Bitcoin is going to affect the global digital money market place in the long run is still largely not known. What began as a novelty quickly became a phenomenon, and has been slowly sinking back into obscurity ever since. Despite some high profile headlines from the likes of the Winklevii of Facebook saga fame, Bitcoin's few months of fortune seem to be coming to an drawn out and painful death, writes Billy Bambrough

How Bitcoin is going to affect the global digital money market place in the long run is still largely not known. What began as a novelty quickly became a phenomenon, and has been slowly sinking back into obscurity ever since. Despite some high profile headlines from the likes of the Winklevii of Facebook saga fame, Bitcoin’s few months of fortune seem to be coming to an drawn out and painful death, writes Billy Bambrough

At the time of writing you can sell one Bitcoin for less than $80. This is a fall of nearly $200 since the soaring highs of early April when the hype and excitement propelled the Bitcoin to a $266 value, and after a turbulent time into mid-May the little digital currency that could has settled into a comfy, steady fall. While the Bitcoin is far from back to it’s pre-boom time levels people involved are likely feeling that maybe it’s time to get out now. Although if they stuck around after the blitz in April (which saw 70% of Bitcoin value wiped away over 48 hours) then I doubt anything will deter this hard core.

The question is, what’s next for Bitcoin? After disturbing the market in such a fundamental way, changing the way that people with no understanding of finance think about money on a basic level, I find it hard to believe we’ll ever return to a world like the one that existed before the rise of Bitcoin. It was undeniably a game changer, proving that decentralised currency is a possible (if currently rather insane) option, but what is yet to be clear is how the game has changed.

Bitcoin is still in the midst of its own unique difficulties, besieged on almost every side and no one knows (other than an army of armchair economists) where Bitcoin and the exchanges that sustain it will end up.

While many big online merchants and some in the real world now accept Bitcoin, and you can use it to buy anything from babies to beer, Bitcoin is far from a common consumer payment alternative. A chain of five pubs in the UK began accepting the digital currency as payment but with the value in near free fall how wise a move is that?

While the merchant will rarely loose out (services like BIPS and Bit-pay can automatically present the market value of the Bitcoin to the customer and then convert it back to harder currency once the transaction is complete) the customer will.

Bitcoin

Six months of Bitcoin to US$

Since it began accepting the Bitcoin as beer money (17 June 2013) the UK pub chain has taken in about $2,750 worth of Bitcoins. In that same time the value of a Bitcoin has fallen almost 30% (27.7%) from $110 to $80. Meaning the customer can now buy 30% less beer from the pub than he could do on 17 June with the same number of Bitcoins. Not how I want to buy my beer.

If Bitcoin is ever going to be widely used then it’s the customers it will have to be convinced to get on board, not the merchants.

EUR/USD

€ to US$ over the last 6 months

Bitcoin has become a volatile and unpredictable currency (see image of BTC/USD over the last six months then compare it to the EUR/USD, known to be one of the most volatile currency pairs. Euro to dollor ranges over 20 cents while Bitcoin spans hundreds of dollars). The Bitcoin is to other volatile currencies what a dragon is to a lizard, and to make use of a well known Tolkien quote: "It does not do to leave a live dragon out of your calculations, if you live near him".

Is Bitcoin going to enter the mainstream consumer market as a widely used currency or ever remain just a traded commodity?