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The price of Bitcoin, which soared to heady heights at the end of 2016 only to drop somewhat over the last two weeks, has been much on the minds of payments observers looking to the digital currency as an intriguing new way to pay. But is Bitcoin a medium of exchange, as its inventor intended, or an investment vehicle? For the time being, observers could be forgiven for concluding Bitcoin’s real value lies in the latter, rather than the former.
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 over the weekend, 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, just before Bitcoin IRA began offering its products, 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.
The price dropped over the first 10 days of January in the wake of profit-taking, but has stabilized in recent days just above the $800 level.
Still, Bitcoin is a string of code invented to be used for payments, not so much to be traded or hoarded like gold bullion. And while the corner store may not have heard of the currency, let alone decided to accept it, there are signs it is making progress in that direction. The number of Bitcoin wallets offered by Blockchain.info stands at 11.3 million, roughly doubling from last year at this time. 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, when Blockchain.info went past the 10-million mark in wallets in circulation, it 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 is now at 0.021 transactions per wallet.
As the population of users expands, it could put increasing pressure on retailers to accept Bitcoin. If that happens, and if more users see their wallets as transaction devices rather than stores of value, the emergence of Bitcoin as a payment method could outshine its star status as a rising, if somewhat volatile, investment medium.
