Earlier this year, when Bitcoin’s price fell by more than 60 percent from its record close, a less-noticed Bitcoin figure also plunged: the number of daily transactions.
There are many explanations for the fall-off in trading, from software- to news-related. What’s less understood is why the level hasn’t recovered as Bitcoin’s price made a 50 percent comeback since Feb. 5. That’s left some investors wondering whether the cryptocurrency is waning in popularity.
The average number of trades recorded daily has roughly dropped in half from the December highs and touched its lowest in two years last month, even as Bitcoin became a household name and roared back to near $11,000.
The transaction data may be bad news for Bitcoin bulls, according to Charles Morris, chief investment officer of Newscape Capital Group in London, who invests in cryptocurrencies. Trading and purchases on the Bitcoin network, which can be measured by metrics like transaction volume, is indicative of price direction, he said.
Following a crash of bitcoin’s magnitude it is only reasonable that some people are shy about now continuing to invest at such a feverous pace. The 69.65% peak to trough decline will have resulted in a large number of people coming under severe hardship but the fall was also enough to encourage bargain hunters at least in the short term. The decline in trading volume is also not so surprising for exactly the same reason.
The biggest challenge facing bitcoin is how quickly the technology is improving. The simple fact is that the network has had to have so many forks because it was never designed to be a payments network. Ethereum was built from the ground up as a smart contracts platform while Ripple was designed as a transactions network.
Right now, Ethereum runs at about a tenth of the speed that Visa or Mastercard does. Iota is not fully functional yet but once operational it will run at least 10 times faster than credit card companies. What then for Bitcoin?
Additionally, bitcoin is in many respects the Chinese cryptocurrency. The vast majority of mining for it is conducted in China. That is where the majority of value is therefore accruing and do we really want to delegate the functioning of a burgeoning financial ecosystem to China? For me at least those are insurmountable issues that deter me from investing in Bitcoin.
Square Inc, was mentioned as a potential partner for bitcoin in news today and that resulted in the share breaking out to new highs following what has been a three-month range.
Jack Dorsey’s other venture, Twitter, is also firming having broken out of a medium-term base.