• by William Mougayar
    Venture advisor, 4x entrepreneur, marketer & strategist. I live in Toronto, curate a lot, blog a bit, and help startups.

Why Bitcoin’s Price is Irrelevant to Its Success

btc crash2The last thing Bitcoin needed was a continued frenzy into higher valuations. I’m not going to justify Bitcoin’s recent price drop with technical trading intrinsics, because that wouldn’t be an insightful way to understand it.

Rather, there is one thing I know- Bitcoin’s price had been growing beyond its promised expectations to deliver something useful to the masses, and not just to the currency speculators. In other words, the gap was widening between its promise and its delivery.

There are really two basic things that Bitcoin needs to do:

       1. put more bitcoin with users
       2. get users to USE it

To tackle #1, whoever thought that a Bitcoin price of $1000+ per bitcoin was going to entice users to convert their fiat currencies in masses was delirious. Actually, high prices prevented users from getting into it, despite bringing joys to the few that bought it at much lower levels.

And tackling #2 consists of two parts: 1) using bitcoins as a currency equivalent to pay for something, instead of with fiat currency, 2) using bitcoin-enabled services that are built on top of the bitcoin and blockchain technologies, i.e. delivering on the “Internet of money programmability” promise.

But today, in reality, the majority of Bitcoin-enabled services are basically still in the oven, in the labs, in development, or in the works. It means they will take longer to get realized. So, why should Bitcoin’s price be so high while Bitcoin-enabled services have yet to come to life? This is like having a wonderful new paradise where the blueprint and sketches are really attractive, but when you want to book your ticket, or buy some land, you realize the prices are totally out of reach, and very few people end-up going there, despite the theoretical attractiveness. Then, developers start pulling the plug on their projects because not enough prospects are coming to check out what they are building. A similar scenario was looming on the Bitcoin horizon, and thanks to the recent Bitcoin price fall, more users will be able to afford that cheap ticket into the cryptocurrency promised land.

What are the benefits of lower Bitcoin prices? For one, it gives developers some room to breathe. It gives them more time to continue developing and dreaming-up the possibilities without undue pressures on their deliveries. And two, it gives consumers a chance to start tasting the Bitcoin magic without having to fork a fortune to get into it. And these are 2 good things.

The price of Bitcoin itself shouldn’t matter in the long term, because it’s not supposed to be a speculative currency. It’s a new method for money management, money services, and all sorts of financial and non-financial transactions.

As long as Bitcoin continued to be driven by the traders and not by the users, Bitcoin was going to be at the mercy of high volatility. Rather, we need more transactions with bitcoins that are native to it. Like a Bitcoin economy of sorts, so that frequently converting in and out of fiat is not as painful or even necessary.

I think we are entering a definitive new chapter in the evolution of Bitcoin. This chapter is one where its price doesn’t matter, but rather its capabilities do. The Bitcoin narrative needs to change. From now on, we need to see less headlines about Bitcoin’s price, and more headlines about Bitcoin-based innovations and applications, along the lines of what Chris Dixon described in Some ideas for native bitcoin apps, or Adam Ludwin in Bitcoin’s Killer Apps, or the Bitcoin applications that Helloblock users are managing, or the distributed decentralized ones that will emanate from Ethereum (arguably what Bitcoin would have been if it was invented in 2014, and not 2009).

Here’s a novel idea. How about splitting the bitcoin into mBTCs (millibitcoins), and use that as the new basis for the currency? Sort of like a reset. 1 mBTC roughly equals 3 cents today. At those levels, who couldn’t afford to buy 100, 1000, or even 10,000 mBTC?

Some Bitcoin price stability is good, and a lack of volatility is like clearing the fog on its future.

Naysayers are calling this a Bitcoin crash, and the end of Bitcoin. End of it? No. Crash? Fine. Remember, some wonderful things happened after the Internet crash, and Internet prosperity ensued. Whenever the sky appears to be the limit, whenever expectations and hype take over from reality, there is reason to believe that a crash brings back some level headedness into the situation. What is the bottom? It may well be $100, a round number I pulled out of the air, but that number is more psychological than technical at this point. It would mean that a lot of people will get into Bitcoin at 1 cent for a mBTC, and that would be a wonderful thing for its future.

So, let’s hope this Bitcoin crash is a wake-up call. It may have hurt a few people, but it’s going to benefit a lot more of them in the long term.

  • http://arnoldwaldstein.com/ awaldstein

    Here’s a question.

    For the small business. For the consumer. For even large businesses, should they spend any cycles on this.

    I’m a believer that block chain will potentially reconfigure our world. For developers and thinkers it is a real time thing.

    For the market that will get handed the solution, does it matter–today other than to be aware?

    • http://www.startupmanagement.org/ William Mougayar

      I think it has a chance to happen more naturally, now that the price pressure is off. It will take a bit longer for the narrative to completely change from its price fluctuations to addressing your questions.

  • Paul Williams

    mBTCs are the default on most wallets these days so that has already happened.

    You don’t have to buy a whole bitcoin, so I don’t get the argument that a $1000/BTC price(for exmpl) prices anybody out of the market.

    I’m a full-time developer in the bitcoin space who feels a lot more comfortable when the price is high, when it’s falling I need to start thinking about taking on some non Bitcoin work. :(
    The $1200 price Nov13 allowed me to pre-order a 3.5th/s Neptune(like many others) reinforcing the Bitcoin network and making it more secure(it’s also heating our house ;) .

    I love the Ethereum project(I’m an investor), but its not BItcoin-2.0, it solves a different but complementary set of problems.

    I really think that in the future we will see the holy trinity of Bitcoin, Ethereum and Stellar interacting with each other in ways that will really change the way we interact with each other and how the world works.

    • http://www.startupmanagement.org/ William Mougayar

      Hi Paul.
      Agreed on your points, except that:
      I think the mBTC is psychological, ie thinking you own .3 BTC vs 3000 mBTC

      Are you a developer or miner? Sadly, high prices without lots of end-users is not good either. They need to grow together more or less.

      Yes, the blended future is definitely the way it will unravel. Bitcoin & Ethereum are complementary in more ways than one.

      • Paul Williams

        Hi William,

        mBTC vs BTC is of course psychological, but if someone new now gets into BTC they are presented with mBTC(even at some of the exchanges or services like circle), where as old timers like me will always think in BTC(or old money, I’ve experienced 2 real currency changes in my life).

        But then of course the price is also psychological, I think a good analogy for it is when a corporation decides to have a 2 for 1 stock split(although a 1000 for 1 split is a bit of a stretch I know), it then seems like a bargain and the old price is soon forgotten.

        The end users will come, probably without even knowing they are using bitcoin.
        ApplePay could easily have used bitcoin as their “token” for an end2end solution, and I have a feeling that they will at some stage in the future(why build a new payment system on top of an ancient and inefficient existing one when we have the blockchain). I suspect bitcoin nudged them into making this play before Bitpay, Coinbase or other beat them too it, but they did not want to be seen to endorse the risky Bitcoin and upset the banks(or market for that matter).
        My gut feeling is that there is a role in there somewhere for Stellar(or Ripple) to complete the end2end payment process that will challenge debit(or credit) cards.
        The interfaces between Bitcoin, Stellar and Ethereum will get very interesting for sure.

        I’m a Professional Developer/Software Engineer but very focused on blockchain technologies currently, bitcoin mining is just a hobby that has got a bit out of hand but its good to have some skin in the game, keeps it interesting.

        • http://www.startupmanagement.org/ William Mougayar

          Thanks Paul for a great comment. You’re definitely on top of it, and doing it.

          I realize that sadly enough, a lower Btc price is not that good for the miners, but hopefully that can be made up by greater good that comes out at the other end of the transactions and usage. Are you currently developing on Ethereum? Let’s connect via email: wmougayar AT gmail.

  • http://twitter.com/jimhirshfield JimHirshfield

    Nice piece.
    I don’t think enough people were in it to have the impact that other crashes (stock market, for instance) have had. So the drama has been well over-stated in the media.

    I like the idea of devaluing the currency, i.e. mBTC. But I think it’s too soon. It doesn’t bother me that the product I might want to buy is priced at 0.00001 BTC, or some other fraction. But I can see your average person being put off by it. Hard to infer how much value that is.

    • http://www.startupmanagement.org/ William Mougayar

      Right. I think it’s part psychological. You know when a stock splits, there’s typically a rally that follows, because it becomes more “affordable”.

      On your other point, about 1000 people owned 50% of Bitcoin. Many of them speculators or opportunistic or lucky to be there. I think that group is probably suffering the most. But as I said, the suffering of a few may result in the happiness of many.

      • http://twitter.com/jimhirshfield JimHirshfield

        Thanks

  • http://www.pointsandfigures.com/ pointsnfigures

    Agree with this. You have some insightful insights into the pressure developers feel with high prices. In commodity markets, when the initial price spread of the market got too wide for the underlying (and by too wide I mean too expensive) we split them. In stocks, they used to trade in eighths, now they trade pennies (which is probably too narrow). Bitcoin needs a futures market to offer stability and a market based guaranteed spread rate between fiat currency.

    • http://www.startupmanagement.org/ William Mougayar

      You understand the financial markets side. I think some healthiness on both sides is needed. If Bitcoin was a public company doing earnings call, it would be full of promises.

  • http://www.helix-sys.com Ovidiu Schiopu

    I think that it’s no so much the ‘price’ but the volatility and store of value that are Bitcoin’s problems. But I admit I’m still on the learning curve…

    • http://www.startupmanagement.org/ William Mougayar

      Yep, volatility easily scares the masses, rightfully so.

      • Tom Mornini

        Not when the volatility is upward…

        • http://www.startupmanagement.org/ William Mougayar

          But the average user doesn’t understand that.

  • Matt Odell

    “Here’s a novel idea. How about splitting the bitcoin into mBTCs (millibitcoins), and use that as the new basis for the currency? Sort of like a reset. 1 mBTC roughly equals 3 cents today. At those levels, who couldn’t afford to buy 100, 1000, or even 10,000 mBTC?”

    Bitcoin are infinitely divisible. The core developers don’t need to implement a “split,” because users and apps can choose to use the best unit that suits their specific purpose. This is a major education issue, that needs to be tackled: that you don’t need to buy a whole bitcoin since it’s infinitely divisible.

    https://en.bitcoin.it/wiki/Myths#21_million_coins_isn.27t_enough.3B_doesn.27t_scale

    • http://www.startupmanagement.org/ William Mougayar

      I know I know :) but it’s part psychological. The targets are the masses, not early adopters.

      • Matt Odell

        Cool. We agree then. I think we should standardize a different unit so people feel like they are getting more for their money. A perfect example of this was the recent Apple stock split. It’s market cap went up for nothing more than an accounting gimmick.

        • http://www.startupmanagement.org/ William Mougayar

          Exactly!

    • William Taylor

      BTC divides into 1,000,000 Shintu, a Shintu divides into 100 pennies.

      • http://www.startupmanagement.org/ William Mougayar

        Shintu? haven’t heard of it.

    • William Taylor

      BTC divides 8 decimal places

  • n0n3such

    So, why should Bitcoin’s price be so high while Bitcoin-enabled services have yet to come to life?

    Like any commodity, there is a cost associated with bitcoin production. Long term, the price of bitcoin trends towards its cost of production or zero, depending on whether it is successful in creating utility for itself.

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