For months the value of bitcoin has fluctuated wildly, which led many to question the overall stability of the currency. However, most recently bitcoin has experienced relative stability, and the wild fluctuations appear to be under control.
Obtaining and sustaining stability will allow Bitcoin to widen its usage with mainstream online retailers. Stability is needed for retailers to charge the correct amounts based on the exchange they will get for US dollars.
Marc Andreessen, a major venture capitalist that has invested in Bitcoin, stated, “Bitcoin is a classic network effect, a positive feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it, and the higher the incentive for the next user to start using the technology.”
Bitcoin is moving forward in an upward spiral. The more people there are using the currency, the more stable the value becomes, and the more stable the value is, the more people there are willing to use the currency. While this is currently very positive, the opposite can also happen.
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It only takes one dramatic event to scare users into selling. If enough people try to sell all at once, the value will plummet, which will cause more people to sell. This is very similar to what happen to the stock market in 1929.
Several central banks and governments have been warning against people against using Bitcoin, in part, because of the instability of the currency’s value. Without the backing of a central government, there is nothing protecting users.
Additionally, some have pointed out that there are also no standards in place to help people if they are scammed during a Bitcoin exchange. With centralized currencies, there are policies in place to protect users and departments dedicated to dealing with negative situations that may arise.
So far in 2014, the price of bitcoin has been mostly steady between $400 and $700. Recently it’s been trending lower, as of this posting Coinbase is showing a price of $391. Compared to bitcoin price fluctuations in 2013, this would certainly be considered “stability” in the eyes of many.
So is Bitcoin going to hit $5,000 in 2014 as some have predicted? Probably not. And that’s probably a good thing for the future of Bitcoin.