Bitcoin price chart
for January shows volatility is still a major factor slowing the
digital currency's progress.
The price chart shows how Bitcoin started the month at $318.23,
according to data from CoinDesk. Over the next two weeks it slid
46% to $172.28. For the next 12 days Bitcoin zoomed back up 78.3%
to $307.16. Then it slumped 29.4% over the final five days of the
And in the first few days of February the
price of Bitcoin
has reversed direction again, rising as a high as $245, for a gain
of nearly 13% in three days.
Unfortunately, that's been the norm for Bitcoin through most of
its six-year life.
For Bitcoin to gain mainstream adoption, this price volatility
needs to be reduced. Bitcoin's tendency to lose 20% to 40% of its
value in a matter of days, or even hours, discourages its use for
It's also why most of the merchants that accept Bitcoin
immediately convert what they receive into a fiat currency like the
U.S. dollar. Fiat money certainly has its issues, but major
currencies like the dollar and euro are relatively stable compared
Now, we've told you before how the real value of Bitcoin lies
not in its price, but in the underlying technology of the
blockchain. While that's true, a major part of Bitcoin's utility is
as a decentralized tool for transmitting money between individuals.
Even applications built on the blockchain will benefit from price
In that sense, the actual price of Bitcoin - whether its $100 or
$1 million - matters less than getting away from the wild price
swings that make it difficult to use.
But there's good news. The mechanisms to achieve Bitcoin price
stability have already begun to appear...
We're Getting Closer to a Less Volatile Bitcoin Price
Some of the factors driving
stem from its nature as a new, experimental form of money.
For one, Bitcoin's low trading volume amplifies volatility. The
number of people buying and selling Bitcoin has grown tremendously
over the past two years, but remains relatively small compared with
other currencies or commodities like gold and silver. Bad news will
make any commodity fall in price. But with fewer traders, it's
harder to match buyers and sellers. Prices have to keep falling to
This is where having more Wall Street involvement will help.
Things like the Winklevoss Bitcoin ETF, the Winklevoss Bitcoin
Trust (Nasdaq: COIN), will help add volume to Bitcoin trading. The
Winklevoss ETF plans to sell shares in dollars but will buy and
hold bitcoins representing the investment, much like the SPDR Gold
Trust ETF (NYSE Arca:
U.S.-based Bitcoin exchanges will also add liquidity. Coinbase
launched its U.S.-based Bitcoin exchange Jan. 26, although it's
only available in 24 states and appears to have jumped the gun on
regulators. The Winklevoss twins have said they're planning a
U.S.-based Bitcoin exchange as well once the regulatory picture
Coinsetter, a New York-based Bitcoin exchange designed with Wall
Street sophistication, last month added the ability to short
Bitcoin as well as trade on margin.
More volume will also make it harder for heavy hands to
manipulate the Bitcoin price. A single large order has caused big
spikes or plunges in the past.
Ultimately, it's all about price discovery. And the more pieces
of that Bitcoin gets into place, the less volatility we'll see. In
other markets, derivatives and swaps play a big role in price
discovery. Such tools have just started to emerge in the Bitcoin
Last September Summit, N.J.-based TeraExchange launched its
platform for Bitcoin swap contracts. It gives traders a place to
bet on the direction of the Bitcoin price and merchants a place to
hedge against volatility.
Bitcoin futures exchanges also aid price discovery. Last month,
BitMEX joined OrderBook.net and OKCoin as places where Bitcoin
futures can be traded. Futures are another kind of hedge.
As more ways become available to bet not just on Bitcoin but on
the direction of the Bitcoin price, volatility will ease. And as
volatility eases, people will feel better about investing in and
the public will feel more confident using it.
January's crazy Bitcoin price chart shows that when it comes to
Bitcoin volatility, we have a long way to go.
But it's just as clear that getting Bitcoin price volatility
under control is just a matter of time.
The Bottom Line:
The January Bitcoin price chart shows the digital currency is just
as plagued by volatility as ever. That's a barrier to adoption. But
as more tools for price discovery arrive, Bitcoin volatility will
relent, and confidence in the digital currency will rise.
While 2014 was a rocky year for Bitcoin, a lot of
positive things happened away from the spotlight. And those
powerful trends have set the stage for some big leaps forward in
Here's why this year will be pivotal for
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