- Published: Sunday, 02 March 2014 07:43
- Written by Editor
Following the ignominious and controversial downfall of Mt. Gox, the exchange rate has remained remarkably stable, a true testimony to the underlying support for Bitcoin generally. This should be no surprise due to the fact that much of the price volatility of the last year or two is directly related to issues at Mt. Gox, which was by far the largest of the Bitcoin exchanges.
The question everyone is asking now, particularly investors and speculators is where the Bitcoin Exchange rate is heading next.
The absolute answer to this question is that now the "Mt. Gox Factor" is out of the way, and as Bitcoin continues to evolve and mature, and in particular as more people become involved competing for available Bitcoin, the only long tern direction for the Bitcoin exchange rate as usage and demand accelerates is exponentially higher levels than today.
The Bitcoin exchange rate showed remarkable stability during the downfall of Mt. Gox, but what of the shorter term, for the remainder of 2014?
Bitcoin has experienced and impressively survived many traumas over the last 6 months, due to government statements and regulation, notably in China, various regulatory threats, and of course the ongoing saga of Mr. Gox, culminating in its sudden demise.
With Mt. Gox gone and factored in to the exchange rate, what we are seeing now is an ongoing consolidation around a realistic price range as the market settles down in the wake of Mt. Gox and migrates to other exchanges. Many previous speculators lost everything at Mt. Gox, and the remainder are proceeding with caution to see where the price consolidates and which exchanges to use taking account of regulatory and other factors.
This situation is very healthy and positive for Bitcoin. The prices reached previously - rocketing to over $1000 amid high volatility was not good for Bitcoin and prevented many from investing and speculating due to the fact that normal trading methods and money management strategies simply did not work. Volatility is also a major factor for deterring uptake by merchants accepting Bitcoin for goods and services, which in turn reduces demand for Bitcoin to pay for those goods and sevices.
Another factor that financial markets do not like in general is uncertainty, and there is plenty of uncertainty in the wake of the Mt. Gox closure, ongoing threats of regulation and banning by governments, adverse publicity on the mainstream media and so on. Bitcoin will not make real headway until these factors are resolved, which is a longer term matter.
Short And Longer Term Prospects For Bitcoin Exchange Rates
The long term price for Bitcoin against fiat currencies will be a function of the success of Bitcoin itself in being accepted in to the mainstream as a form of money in its own right in place of fiat currencies. The demand for the limited amount of Bitcoin available and will ever be available could see the Bitcoin price many orders of magnitude from today, based simply on simple math - the more demand there is for available Bitcoin, the higher the price - and demand has not even got started yet. If Bitcoin replaced all fiat currencies, the price could be many billions of dollars or equivalent per Bitcoin. Even partial replacement implies a price in the millions - but this remains to be seen. However, with the global financial system on the verge of imploding, this process might happen sooner than many might think.
There does not seem to be any news or potential news that could really move the Bitcoin market dramatically, particularly while there is so much uncertainty, so the immediate future is in the dust settling after Mt. Gox, consolidation and restoring confidence in Bitcoin, especially in the mainstream. This is a process that will likely take the remainder of 2014 to work out.
While it is unlikely then that the Bitcoin exchange rate against the Dollar can significantly breach the previous highs this year, a stable orderly market is vastly more preferable to the chaos of the last year, will underpin the strength and future of Bitcoin, and provide Bitcoin traders with a much more orderly market, in line with forex and other markets, upon which to make trading decisions based on normal trading principles.
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