The Value of Bitcoin
The value of bitcoin (BTC) has varied significantly since its advent back in 2008 by Satoshi Nakamoto. Without a centralized banking authority, or a market of usability to base it off, the BTC was originally worth less than a penny. The first transaction using bitcoin involved two Papa John’s pizzas which were bought for 10,000 bitcoin, which was negotiated in the bitcointalk forum. Assuming the two pizzas were worth around 25 USD, this would put the USD-BTC exchange rate at 400-1, making BTC worth one fourth of a penny. This is not that bad, considering these coins were mined for no cost except electricity. Despite its humble beginnings, the bitcoin would soon experience a prolific, unprecedented rise in value.
As shown above, the value of BTC almost reached $1000 USD before the dawn of 2014. This dramatic increase from $100 to almost $1000 USD per bitcoin occurred in less than two months. Since then, it has dropped, raised, and settled around $400 USD as of January 20th, 2016. The value, as with any free market item, is determined by what the people are willing to pay for it. With bitcoin, people have invested their faith in this curious cryptocurrency. Not just people, but bankers, vendors, and investors are all hopping on board the BTC train, aspiring to make money off of this lucrative currency.
The volatility of bitcoin, meaning the likelihood of a sporadic change in prince, has been historically worrisome for BTC users. Within about 5 months in late 2013 and early 2014, BTC jumped to around $1000 USD from $100 USD, and then back below $500 USD. During these volatile time periods, you could gain or lose large amounts of money investing in BTC. Recently, the volatility has decreased, and the price is relatively stable, albeit still being prone to significant daily alterations. For example, in 2015, its value in USD increased by 21%. As bitcoin become more and more acceptable as a currency, the price will likely increase because this implies that people are realizing it as a worthwhile method of transaction.
Let’s analyze year-by-year the historical values of BTC
2011:
In 2011 was one of the first price booms that occurred for the BTC. Within a couple months, the price spike from under $1, to around $30, followed by a relatively quick drop back to $1 within the ensuing months. We see these mini booms throughout the history of the value of bitcoin. These were somewhat prophetic of the eventual booms of increasing value exhibited by the BTC in the later years.
2012:
In 2012, there was a steady increase in BTC value from around $4 to $15 USD. There was not many drastic changes in price besides a significant 40% drop in late August. This was a momentous year for BTC because it demonstrated its ability to grow in a stable manner, and also new markets were now accepting BTC as an acceptable currency. It is also worth noting that Silk Road, an underground website that accepts BTC and sells illicit items, was up and running during this year. The following year in 2013 this would be shut down, but the value of BTC persevered and has its most exciting year in its history
2013:
If you were the man or woman who was paid 10,000 BTC for two papa johns pizzas back in 2008, you were in for a treat in 2013 if you were patient enough to hold on to your ever-increasing BTC. If he or she sold their 10,000 BTC in November of 2013, they would have essentially earned $10,000,000 USD from a 5 year investment. This makes those original two papa john’s pizzas the most expensive pizzas, in hindsight, ever to be bought. From its humble beginnings, this would have been hard to predict. Who in the original bitcointalk forum could have guessed that the price would jump from a fraction of a penny to a thousand dollars in 5 years? Many have speculated as to whether or not BTC will ever rebound back to its $1000 USD glory. It seems likely, especially since BTC is still in its infant phase, and still requires more efficient, and safe programs to help arbitrate its transactions. There is also the doubt in many people’s minds that the value of BTC may crash, but this seems very unlikely. If anything, BTC is in store for another prolific rise in value as exhibited in 2013, especially when considering the rising debt ceiling, and rising inflation rates, BTC seems like a safe investment during these times.
2014:
In 2014, the value of BTC suffered from the 2013 bubble. The dramatic ups and downs through 2014 made this an exciting, albeit downward, year for BTC. The end of 2014/the beginning of 2015, and even today at around $400 BTC/USD, seems like the time to buy. It seems likely that the BTC will bounce back to its 2013 glory, because the acceptability trend is going upwards; more and more vendors, banks and investors are accepting this as a valid currency. With more backers, another boom is likely, especially facing inflation.
2015:
2015 also saw its dramatic ups and down, but overall saw a 21% rise. This was powerful for the BTC value, because it encouraged people to believe that BTC will continue to be a valuable form of currency. If the crash would have continued, people may have begun to lose faith in BTC throughout 2015. With a timely rise in value, it seems as though BTC is here to stay; vendors and banks seem to agree.
Where is the value of BTC headed? It is hard to tell. From examining its history, growth seems inevitable, but the ever-present thought of a potential crash is always in the back of the minds of users and investors alike. Despite all this, it has made it this far, and the future of BTC appears to be bright. It will be interesting to keep an eye on the bitcoin in the years to come.