Tags: bitcoin | virtual | currency | asset

Bitcoin Bounces Back

Friday, 06 Jun 2014 07:42 AM

By Barry Elias

Bitcoin is recovering nicely.

The recent indictments of Silk Road, the bankruptcy filing of Mt. Gox and an IRS ruling to tax bitcoin as a capital asset caused the price of bitcoin to tumble significantly, from nearly $1,200 in December of last year to $360 in mid-April. Since then, the price has surged to $660, an increase of more than 80 percent in less than 2 months.

The recent rally seems to reflect strong investor and consumer confidence in this transaction medium. It also coincides with the ending of the Bitcoin 2014 Conference in Amsterdam. This venue featured close to 2,000 attendees from more than 50 countries, and many participants offered a very positive outlook for bitcoin in their respective countries.

This phenomenon seems quite global in breadth and not limited to the major economies, such as the United States, China and England. This year, the Silicon Valley venture capital community has experienced a huge demand for bitcoin funding, where average rounds have increased more than 10-fold, from $1 million to $2 million in 2013 to more than $20 million this year, according to CNBC.

Last week, Dish Network became the largest company to accept payments by bitcoin. Coinbase, a third-party processor, will convert the bitcoins to dollars, thereby providing liquidity to minimize price volatility and conversion risk. Other bitcoin accepters include the Sacramento Kings of the National Basketball Association and rapper Curtis "50 cent" Jackson for his new album "Animal Ambition."

Virtual currencies, such as bitcoin, are considered asset-backed currencies, since they rely on an effective and efficient use of resources in their production. This is not the case with global fiat currencies, such as the U.S. dollar, EU euro and British pound, that are created at will by sovereign entities. As such, virtual currencies encourage more-prudent investment and consumption, represent a close proxy for general economic conditions and price levels and preserve purchasing power over time more readily.

The future for virtual currencies continues to be strong.

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