Up and down: the positive and negative consequences of dramatic Bitcoin price corrections
By Javier Marti, founder, BitcoinGlobalInvestments.com
Whenever there is a dramatic bitcoin correction, the same fundamentals can be observed. Below are some observations on both, positive negative effects of these corrections, and what they may mean and imply for the present and future of bitcoin.
Strong corrections in the bitcoin price…
1) Present a buying opportunity for “hardcore supporters” of BTC.
2) Teach newcomers and young “investors” to understand their true motivations and do some soul-searching on what terms like “faith”, “trust”, “fear”, and “greed” mean for them. For many of the younger individuals in the bitcoin community, these are very valuable lessons they can apply to other areas of life. Many will also learn about making costly mistakes in life, diversifying assets, why it is not a good idea to invest all your money in speculative instruments, why it may not be a good idea to convince friends and family to invest, etc…
3) Corrections are a powerful reminder of how markets can go down as much, and as fast, as they go up, for amateurs who mistakenly see themselves as bitcoin “traders”.
4) Delay flawed regulations.
Dramatic drops in prices confuse law-makers, delaying regulatory approaches that would not accurately address bitcoin issues in their full complexity. This is because in rapidly-changing environments, highly bureaucratic structures tend to become paralyzed. Bloated reporting and decision-making systems do not act fast enough to address rapidly moving and complex challenges. As short-term valuation falls once again, bitcoin goes from being a “top priority”, to “something that can wait”, in the eyes of lawmakers that are already beginning to perceive their lack of understanding of crypto-currencies.
For bitcoin supporters and developers, this kind of confusion is much better than linear increases in the price of bitcoin that attract further attention to it, and can be used by misguided regulators and lobbyists to “predict”, or more easily “fight against” the currency. However, as all of this happens, BTC developers and the BTC infrastructure continues developing regardless of short-term price fluctuations.
5) As an indirect result of the slowing down of BTC, businesses adopting bitcoin will not see a sudden increase in the demand for bitcoin payments in a short period of time. For businesses accelerating their acceptance of bitcoin as a payment method without the proper understanding and logistics in place, a temporary decrease in demand is good news.
6) Similarly to the previous point, a correction of the market gives more time to currency exchanges to catch up with backlogs of orders and update and improve security systems. These activities are made much more difficult in times of peak demand.
7) Dramatic bitcoin corrections attract more attention into the space. According to our research, it takes several mentions of “bitcoin” for the general public to decide to learn more about it. Even bad press can be good if it means more people discover bitcoin as a consequence of it.
8) Corrections help to bring forums and boards –some of the main sources of bitcoin information and news- back to more important discussions about fundamentals, security and infrastructure, which are ultimately more productive than speculative discussions on short term price fluctuations.
9) Sudden downward price fluctuations further confuse media “experts” that will once again make typical mistakes reporting on it. These mistakes will allow individuals to better identify more reliable sources of bitcoin information, and avoid unreliable ones.
10) It brings mass media attention back to bitcoin and away from Alt-coins, coverage of which could lead to confusion in the minds of the general public.
Negative consequences of dramatic drops in price:
1) It gives ammunition to bitcoin detractors on all fronts. On the regulatory front, lawmakers may see and present bitcoin to the public as “too volatile” or “dangerous”. In the other hand, certain elements in the press and precious metal holders will express different variations of the “I told you so” theme.
2) It further confuses journalists and bloggers, which in turn further confuse the general public about the “true value” of bitcoin. In the short term, press focus will go back to volatility instead of the fundamentals behind bitcoin.
3) It makes it more difficult for bitcoin funds and startups to attract larger quantities of investment money in the short term.
4) It slows down the development of bitcoin-related businesses and startups.
5) In some cases, it diverts capital from bitcoin to alt-coins, with investors using alt-coins as a hedge “in case something happens to bitcoin”
Finally, dramatic price corrections give a distorted image of the bitcoin community, increasing the perception of it being populated by speculators on a greater scale than it actually is.
Based in our experience at BitcoinGlobalInvestments.com on press-sentiment analysis, at times like these -when an influx of negative bitcoin press and blogging activity is expected- we usually see a slight but statistically noticeable change in the terms used to describe bitcoin-related individuals from “cryptographers/computer scientists/programmers” to “speculators/gamblers” in line with negative press coverage.
Someone recently said that press references to Satoshi Nakamoto had gone from “computer hacker” to “researcher” in the last few weeks. In the short term, we can expect him to become a “hacker” again, at least in the eyes of the press.
In any case, the fundamentals of the bitcoin protocol and idea remain as strong as ever, and investors and the general public will benefit from realizing the speculative nature of the kind of short-term fluctuations that we are currently experiencing.
Javier Marti is the founder and CEO of BitcoinGlobalInvestments.com
For more information visit JavierMarti.co.uk
info (at) BitcoinGlobalInvestments.com
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