One Secret of Bitcoin Bulls

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By David Smith

Many people think bitcoin enthusiasts are unjustifiably excited about bitcoin’s potential.

There are many reasons for this excitement; the most obvious being that bitcoin-like technologies have the potential to change every financial transaction on the planet and enable never before seen types of financial transactions. But bitcoin bulls have a secret.


The Secret: Bears Become Bulls

Bitcoin bulls are excited about bitcoin because nearly all were non-believers upon initially hearing about bitcoin. And many bulls believe any open-minded person who spends time learning about bitcoin will agree it has massive potential, even if they disagree on the likelihood of that occurring.

Why People Convert

The early bitcoin adopters were typically people in more quantitative careers like engineers, investors and programmers. Bitcoin is so different from the world as most know it that most initially rejected bitcoin as toy money, or an asset bubble destined to crash.

Related: Signs A Bitcoin Tidal Wave Is Forming To Disrupt Business

The difference for the early adopters was that, after hearing about bitcoin a few times, they learned more about it. Many early adopters had a "eureka" moment, when they understood the reasons why bitcoin had been successful -- and why it was likely to continue growing at a breakneck pace.

What The Bears Don’t Get

Most bears don’t spend time learning about bitcoin and seeking answers to their concerns. Instead, many compare a five-year-old currency to the most successful monetary units on the planet: the U.S. dollar and gold.

Tesla motors was founded in 2003, and no one is asking why Tesla doesn’t have the same market share as Ford or Toyota. Investors understand Tesla is still developing and has the potential to shake up the auto industry.

Investors and analysts should understand the bitcoin ecosystem is developing at breakneck speed. The ecosystem is vastly larger than it was a year ago, and is growing at an increasing rate. In five years, it might be fair to compare it to the U.S. dollar. Think how fast email overtook fax and traditional mail. That is the type of adoption curve bitcoin appears to be on.

Bears Focus on Volatility and Adoption

Why doesn’t bitcoin get the same understanding? The digital currency is barely five years old, is tackling a tougher problem and is growing faster than Tesla. However, bears focus on bitcoin’s price volatility and lack of adoption. And while highlighting the negative aspects of volatility, the bears do not mention bitcoin was the best investment of 2013.

2014 has brought news of a slew of companies accepting bitcoin -- including Dish Network, Overstock, the Sacramento Kings, Stripe, Square and the San Jose Earthquakes. With merchant acceptance increasing and hints of PayPal and Amazon planning to accept the currency, many are calling 2014 the year of adoption.

Related: Actions By 3 Fortune 500 Companies Signal Bitcoin's Price May Surge In 2014

What About Volatility?

As a nascent currency, bitcoin is going to have a lot of volatility for the foreseeable future. This is a good thing for many investors, because it provides opportunity for them to speculate and make a fortune if bitcoin becomes as ubiquitous as Visa.

However, for merchants and some investors, the volatility is a big turn-off. To satisfy those use cases, startup Bitreserve, which recently launched a beta program, has an offering to eliminate volatility while providing the benefits of bitcoin.

Related: Bitcoin Is Not Just A Volatile Bubble

Bitreserve promises to let bitcoiners have their cake and eat it, too, letting them choose if they want exposure to volatility or not while utilizing bitcoin’s innovative features. Bears who take the time to learn about bitcoin will realize it could be fundamentally better money than anything in existence. It just lacks maturity, and that's why bears become bulls.

Disclosure: At the time of this writing David Smith had a long bitcoin position.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




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