DT, February 2017
February 1, 2017
Last summer, Digital Transactions published a cover story about Bitcoin headlined “Masterpiece or Showpiece?” In the article, freelance writer Bailey Reutzel pointed out that while the cryptocurrency was invented as a medium of exchange, it has developed instead more like a collectible—something of value that behaves like an investment.
That story came to mind last month as we pondered developments in the Bitcoin world. Payments observers look to the digital currency as an intriguing new way to pay. By New Year’s Eve, though, the excitement around Bitcoin was all about its price, which had soared to heady heights as 2017 dawned. So the question arose: Is Bitcoin a medium of exchange, as its inventor intended, or an investment vehicle?
Some eight years after its introduction, relatively few physical or online merchants accept Bitcoin, and the population of Bitcoin ATMs remains sparse. But the runup in the cryptocurrency’s value has created other possibilities that weren’t so obvious when that value languished in recent years.
As The Wall Street Journal pointed out in a story last month, a $5,000 investment in Bitcoin at the end of 2011 would have been worth an eye-popping $1.2 million by the end of last year. A Sherman Oaks, Calif.-based company called Bitcoin IRA has been offering since June individual retirement accounts that hold Bitcoin as their asset, according to a report in the Journal.
Few would have thought of Bitcoin in these terms only a year ago. The currency was trading at $385 on Jan. 16, 2016, according to Blockchain.info. Late in May, the price commenced a steady march upward. Driven by speculative fervor and events like the devaluation of the Chinese yuan, Bitcoin traded around $600 for most of the summer, broke through the $700 barrier in November, and soared past $1,000 just as 2016 closed out.
Yet, Bitcoin is a string of code intended to be used for payments, not for hoarding like gold bullion. As of mid-January, the number of Bitcoin wallets offered by Blockchain.info stood at 11.3 million, roughly double that of a year earlier. The U.K. company says its wallet is the most widely adopted globally.
The big question is how often these wallets are used. In November, Blockchain.info was seeing 0.028 transactions per wallet per day. Lately, the growth in transactions hasn’t kept up with the rapid rise in wallet count. The daily rate at mid-January was 0.021 transactions per wallet.
As the population of users expands, it could put increasing pressure on retailers to accept Bitcoin. For now, though, Bitcoin owes its star status to its role as a rising, if somewhat volatile, store of value.
—John Stewart, Editor | email@example.com
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