Flash back to 2013 and the media was awash with a new currency, based on blockchain architecture, that was going to flip world markets on their head. What was previously the preserve of shady Deep Web transactions had started to go mainstream. Bitcoin had arrived and with this, the first cryptocurrency, the future of money as we knew it, found itself on a precipice.
Speculators moved fast; Bitcoin ATM’s started appearing in Canada and the USA, the value of Bitcoin increased by almost sixfold in less than a month to $1,242 in November 2013 and by the end of 2014 major organizations including PayPal, Microsoft, Dell and Newegg had started accepting the cryptocurrency.
Many viewed these events as the beginning of a new decentralized currency outside of the direct control of government institutions. A new, fast, secure and cheap way of transferring funds had arrived. But fast forward to 2018 and the number of companies accepting Bitcoin has reduced dramatically. Initial supporter of the cryptocurrency Microsoft now no longer accepts Bitcoin and other major organizations such as Stripe, Reddit and Steam have also dropped their support of the cryptocurrency between December 2017 and March 2018.
So what sparked this drop in popularity for the one time darling of the cryptocurrency market?
Well, the answer is twofold:
Well, the inherent volatility of the currency is a huge factor. The signs were there from the early days, between November 2013 and April 2014, Bitcoins value more than halved. And at the time financial author Mark T. Williams stated that the currency had volatility seven times greater than gold, eight times greater than the S&P 500 and 18 times greater than the USD. Bear in mind; this was back in 2014, today the volatility of Bitcoin has only increased, with the cryptocurrency going from $1,140 in April 2017 to $19,783 in Dec 2017 and then back down to $7,964 in Feb 2018. It is for this reason that organizations are no longer accepting the cryptocurrency as the risks are too great.
Next, is the fact that Bitcoin, now operates in a massively crowded market. At present, there are roughly 1,380 cryptocurrencies available. Conversely, it’s the rise of these multitudes of cryptocurrencies that contributes towards their volatility, as investment swings between different platforms. And with so many options available, organizations are simply unable, and in most cases unwilling, to make the investments needed to accept such a multitude of fragmented and volatile currencies.
Ultimately, the promise of cryptocurrencies such as Bitcoin has been unfulfilled. These blockchain enabled instruments, through their very own success, has pushed them away from fulfilling the role of currencies and has instead made them merely tradeable instruments, at least at this point. To add another nail in the coffin of cryptocurrencies, numerous governments have, or are in the process of, imposing regulatory control over these instruments.
So will we see cryptocurrencies replacing the USD or GBP anytime soon? Simply put, no.