Bitcoin Ends Month Up 28%, Quarter Up 36%, Year Up 41%
Though Bitcoin may never again see gains in a quarter like it had seen in last year’s second quarter, the chart for this April through June period on the calendar which just ended saw a pretty decent gain as well.
For the month of June, 2012 the closing price of $6.69 was a dollar and a half above the previous month’s close giving a 28% gain for the month. The first quarter had closed at $4.90 so the closing price for 2Q2012 shows a gain of 36%. For 2012, where the price opened at a $4.72 level, the price rise from January 1st now exceeds 41%.
Unlike previous rallies for Bitcoin, this one occurred without there being a major story or significant level of media attention. With Bitcoin being new to most people yet, such attention normally draws interest from a wider community who then wish to own some of the digital currency .
This doesn’t mean that June was a particularly quiet month for Bitcoin though.
Instability in Europe due their financial crisis made Bitcoin useful as both a store of value and also as a tool for transferring money to other destinations. The Bitcoin exchanges offering BTC/EUR trading all saw record monthly trading volume levels and most of the other European currency markets such as the BTC/GBP (British pound sterling) and the BTC/PLN (Polish zloty) broke monthly volume records as well.
Even exchanges that trade bitcoins against non-European currencies but cater to customers from the region saw record months. BitStamp, known for having a very accommodating SEPA payments policy, traded more through its BTC/USD market in June than it had in all previous months combined. VirWoX monthly volume broke its previous record and BTC-e, home for the second largest BTC/USD market, nearly tied its previous monthly volume high as well.
This doesn’t mean trading market share at other exchanges was simply just grabbed from the leading exchange, Mt. Gox, however. Though Mt. Gox’s monthly volumes are still down more than half from where they were in January, volume on its BTC/USD market saw $8.3 million worth of trades occurring in June — a 32% increase over May 2012’s monthly volume.
Though the reasons for the increase in volume at the exchanges can be easily explained, the reasons for the increase in the price are more difficult to pin down.
Of course, the upcoming drop in the block reward (expected to occur in early December) is likely one reason. When that event occurs, the rate of currency inflation will drop from the 25% per-year level to just 12.5%. Because this is known in advance, however, speculators may already have this change priced in to the exchange rate and thus no further price appreciation will necessarily occur after that event occurs.
Another factor affecting price may be just a one-time event.
Since May when Bitcoinica suffered a security breach that keeps it shuttered yet today, there remain few methods to go short on Bitcoin — to speculate that the future price of bitcoins will go down from current levels. Ironically, most of the funds from traders wiling to take that bet are still stuck at Bitcoinica which only recently starting returning some funds as it continues to work at reconciling its customer accounts.
While aspirations to fill the void that followed Bitcoinica’s exit are numerous (Kronos.io, options at MPeX, BitcoinOPX, various approaches involving assets listed at GLBSE, and binary options through predictions markets even) traction anywhere near the level Bitcoinica held remains far off, at best.
But there’s a more immediate development likely affecting the price as well.
The most significant conversion of funds out of bitcoin occurring today happens to be coming from those who are, ironically, enthusiastically showing their trust in Bitcoin’s future!
Announced formally in June was the new product line from Butterfly Labs for their ASIC-based hardware. This development changes the landscape for Bitcoin mining operators entirely.
Because of the profit potential in being among the first to start mining with these breakthrough devices, pre-order sales placed just to get a position in line have been at astounding levels.
Mining operators who held bitcoins are now spending them (particularly because priority processing on orders is given to those paying with bitcoins), but the proceeds from each sale are then converted to dollars. Even that significant new supply of bitcoins being sold at market appears to not have much of an impact on the exchange rate as the the June month-end level is near its mid-month high.
Miners took in the 226,750 bitcoins that were issued (also referred to as being “mined”) during the month. Using the average daily valuation of $5.99 the value of these bitcoins issued totals a little over $1.35 million. Along with the rising exchange rate, mining profitability has been rising as well. Offsetting the rise in the exchange rate was an 8.5% increase in the mining difficulty but even so miners milking their GPUs a while longer yet have little to complain about.
But Bitcoin does not and cannot exist solely to benefit those mining and though millions of dollars worth of trades are occurring on the exchanges each week, those trading volume levels are likely for the most part due primarily to speculation.
Even if these trades were entirely for funds passing through the exchanges to facilitate commerce made using bitcoins, the actual transaction volumes seen on the Bitcoin payment network today are likely still too low to justify the current $62 million USD aggregate currency valuation for Bitcoin.
The use of the currency is showing evidence of it gaining traction, particularly as its footprint expands globally and also for its use in gaming. Taking advantage of Bitcoin’s blockchain for accepting wagers, SatoshiDICE is alone responsible for more than half of all bitcoin transactions occurring each day,
Though Bitcoin is an ideal payment network for eCommerce (evidenced in part with BitPay's merchant base now exceeding 600 merchants) it also has the technical ability to function well for retail point-of-sale. Such use is not common though yet. Even claims of fantastic Bitcoin uptake at PorcFest aren’t enough to attract retailers in any significant number.
A hurdle needing a breakthrough is the resistance by Apple which evicted all Bitcoin wallet apps from its App Store.
Bitcoin will be hamstrung if all users of iOS devices would be excluded from participating due to this anti-competitive action from Apple.
In the absence of a mobile app, alternative methods including Blockchain.info’s new send bitcoins via SMS service won’t mean all iPhone users will be completely left behind.
And though consumer grade Bitcoin apps are flourishing on Android the point-of-sale options available to merchants just aren’t there yet to cause widespread adoption.
This situation could change entirely though if the BitcoinCard, expected early in 2013, ends up gaining traction.
The question as to what caused this past quarter’s exchange rate boost remains unanswered though for most of us. Even more baffled as to what propels Bitcoin forward are the skeptics and those formerly skeptical about bitcoin’s chances of staying strong.
While there’s nothing new about a volatile financial instrument gaining 30% in a month, what becomes interesting is that this gain occurs at the same time other commodities such as precious metals and crude struggle.
The Bitcoin community has been growing, that’s been obvious. This chart, for example, shows that traffic on the BitcoinTalk forum is up over 50% from levels seen at the beginning of the year.
Thanks to easier methods to acquire, store and transact in bitcoins, the currency can expand beyond its bleeding edge early adopters and become usable to those who are less-technical and to those whose motivation is not mainly political.
With a wider base holding bitcoins, the currency becomes less vulnerable to selloffs. A speculator unloading bitcoins generally has one option — to cash out at an exchange, whereas smaller investors and consumers holding bitcoins can cash out by spending their coins on goods and services.
Whatever the reason for the second quarter gains, it may finally be time that expansion of the Bitcoin economy will occur from these gains as well.