Weekly Trend: Will Bitcoin Boom in 2015?
Bitcoin, the decentralized cryptocurrency invented in 2008, was originally distributed as payment for lending computing power for various processing tasks. By 2014, Bitcoin made many headlines, as Bitcoins began trading strongly against the U.S. dollar, reaching the height of $951.39 per Bitcoin, before falling to $309.87. At the same time, 2014 saw Bitcoin adoption spread to numerous online merchants and startups.
Thus, the question has become, what will 2015 mean for the future of Bitcoins and the startup community?
There is some good news for those seeking to enter into Bitcoin as a startup. Wired reports that some states’ proposed regulations “may not be as onerous” as originally feared. In October 2014, the superintendent of New York’s financial services confirmed that the state will not require software developers and startups looking to host Bitcoin transactions to have a license in the same manner as a traditional bank.
Furthermore, it was acknowledged that virtual currencies such as Bitcoin were at a “crossroads” and were poised to have a significant impact on the “future financial system” and that New York would proceed “thoughtfully” with regard to the issue of regulation in 2015 and beyond. This acceptance of present, but not onerous, regulatory scheme could encourage more major companies to follow the examples of Microsoft in accepting Bitcoin for some purchases.
Venture funds also seem to indicate interest in the success of Bitcoin, with VC investment in Bitcoin and related infrastructure reported by Coin Telegraph at $362.26 million through the end of 2014. Of this, only 15 percent of VC funds went to payment processor “wallet software” while a plurality of 22 percent went to “universal” companies, including various startups.
Although an intelligent regulatory scheme is always important to the success of startups, many challenges still face Bitcoin and those who seek to adopt the cryptocurrency. Coindesk writes of the 2014 collapse of Mt Gox, one of the largest and most public Bitcoin exchanges. The collapse of Mt Gox’s exchange is largely blamed for the 67 percent decline in the overall value of Bitcoin in 2014—a trend that has continued into the early days of 2015 with a further 18 percent decline in Bitcoin’s value. Though Mt Gox was only one exchange, its ultimate legacy may be to expose Bitcoin as a largely volatile currency, which increases risks for startups seeking to both accept the digital currency as payment and act as a third-party payment platform, since volatile currencies open the doors for speculation.
Indeed, Bidness Etc reports that the downward trends seen in 2014 will continue through 2015 due largely to other, easier, forms of digital payment systems such as Apple Pay that consumers can easily adopt and understand. Lastly, Inside Bitcoin writes that despite the promise of states such as New York, the reality of existing regulation is a “patchwork” of overlapping, and conflicting, regulation at the state and federal level. This has caused many states to simply wait for direction from federal rule makers and regulators, which has in turn caused many delays in adoption and licensing.
In the end, the success of Bitcoin as currency and a viable avenue for startups to explore will depend largely on two things: the state of regulation, and the volume of useful merchants that adopt the currency as a form of payment for useful, everyday goods. No amount of VC funding will be able to help the Bitcoin market if consumers and merchants are unable or unwilling to adopt the digital currency.