Bitcoin, the world’s leading cryptocurrency, experienced greater price stability in 2015 after a volatile two-year period defined by record highs and market crashes. Although bitcoin remains a controversial mode of exchange, its ascendancy into the mainstream is likely to continue in 2016 as demand for cost-efficient payment platforms and innovations in exchange technology remove the stigma associated with cryptocurrency. In the case of bitcoin, price action is becoming more predictable as more governments and private merchants recognize its value and accept it as a legitimate form of payment.
The Bitcoin Peak in 2013
The value of bitcoin peaked at $979.45 on Nov. 23, 2013, after surging more than 7,200% over the previous 11 months. Some analysts describe this period as the bitcoin bubble. Bitcoin’s price bubble eventually burst in early 2014, with prices falling more than 75% over the next 12 months. Several reasons were behind the price collapse, including new government restrictions, bitcoin’s association with the Dark Web and waves of price movement that typically follow a high-profile sell-off.
However, bitcoin has since recovered from its bear market lows and by December 2015, is on pace for a yearly gain of more than 40%. The price of bitcoin in 2015 enjoyed its steadiest uptrend since the onset of the 2013 bubble, signaling the foundation of a sustainable recovery.
Bitcoin Finding Its True Value
Huge swings in bitcoin’s value over the past three years make it very difficult to forecast effectively where it will end up in 12 months’ time. While it may be difficult to pinpoint a fair market price for bitcoin, its trajectory is not all that uncommon. Like other asset bubbles before it, such as the 1999 to 2006 U.S. housing bubble, bitcoin began as an expensive luxury before turning into a highly speculative trading instrument. Since the bursting of the bitcoin bubble, buying and selling activity appears to be guided more by underlying market fundamentals than during the periods before and immediately after the market crash.
The virtual currency market of 2015-2016 is very different from the one of 2012-2013. In just a few years, startups, corporations and even governments have begun exploring the underlying technology powering bitcoin, the blockchain. As of December 2015, bitcoin is accepted by more than 100,000 merchants worldwide. Several national and regional governments, such as the United States, Canada, Australia and the European Union, have accepted bitcoin and other cryptocurrencies as a legitimate form of payment. The British government has also publicly stated its interest in bitcoin’s blockchain technology to improve transparency and accuracy of its record keeping.
Demand for Cryptocurrency Rising in 2015
The growth of e-commerce, money transfer and micropayment industries is creating greater demand for cryptocurrencies, as individuals and businesses look for safer, easier and more cost-effective ways to complete cross-border transactions. Among the largest and most reputable businesses to accept bitcoin are Microsoft, Wikipedia, PayPal and Expedia, signaling that the cryptocurrency phenomenon is here to stay.
Increased demand for cryptocurrency, combined with its potential to cut down transaction costs, is likely to keep the price of bitcoin above $400 in 2016. Bitcoin is expected to account for a growing share of the global e-commerce and remittance ecosystem over the next 10 years.
As more players enter the cryptocurrency space, bitcoin may experience higher volatility in 2016, although the underlying trend is likely to be positive. Another factor that investors and consumers should bear in mind when speculating about bitcoin’s future price is there will only ever be 21 million bitcoins in circulation. This fact alone will likely make the price of bitcoin continue to rise moving forward.