Bitcoin 2014 Price Correction Explained


Bitcoin is a decentralized open-source, peer-to-peer, pseudo-anonymous digital currency. If you have ever tried explaining this to a family member, friend or random person on the street, you’ll know that this concept is extremely difficult to grasp and takes an immense amount of explanation for people to understand what it is. However one of the best ways for people to understand the utility and purpose of bitcoin is to show them how to use it. By simply telling someone that it’s an online currency that can be spent at places such as Overstock, Newegg or eBay, the illusive nature of bitcoin starts to make more sense.

But before 2014 however, you really couldn’t spend bitcoin anywhere. Cryptocurrencies largely existed as a free-market experiment on the internet, hiding the depths of the darknet, waiting for governments of the world to weigh in on the legality of using this technology. The uncertainty and risks surrounding bitcoin prevented investors and corporations from associating their brands with this innovative technology and left them no choice but to wait and see what happens.

Then in December 2013, bitcoin experienced yet another parabolic rally, this time reaching an all-time-high of $1,100 which propelled this technology into the mainstream. Since then, bitcoin has remained a hot topic in the mainstream media and has started to be taken seriously by some of the most influential innovators of the internet age. Some of the largest corporations have started accepting bitcoin as merchant adoption and mainstream coverage have reached unprecedented levels. Since reaching its peak, bitcoin has been trending lower leaving a lot of people unsure about what the future holds for this revolutionary technology. Many people are wondering, what explains the bitcoin price correction during 2014? If this technology so great, then why has the price been consistently drifting lower? Whereas there is no single explanation about why the bitcoin price has been trending lower, this article will investigate the short-term negative effect that increased merchant adoption has had on the bitcoin price.

The amount of merchants that have adopted bitcoin during 2014 has been absolutely astounding. Major corporations such as Overstock, Dish Network and Newegg, among many others, have embraced bitcoin with open arms while experiencing increased sales and a flurry of free press. Even though the acceptance of bitcoin for payment by these large corporations have helped legitimize this technology, the effect of increased merchant adoption has helped push down the price of bitcoin. The reason increased adoption has contributed to the price decline is simple. People who would’ve continued holding their bitcoins were now able to spend them (which is what they’re mainly supposed to be used for) and the merchants who accepted them, sold them immediately for the cash value. These corporations collectively have done millions of dollars worth of sales through bitcoin during 2014 and their proceeds have all been dumped onto the open market.

Even though this effect seems counterintuitive to a long-term buy and hold perspective for bitcoin, increased merchant adoption won’t always lead to price corrections. In the short term, the companies that have accepted bitcoin during 2014 have done so in an extremely uncertain environment. The price had just experienced a parabolic rise in late 2013 when barely anyone understood what bitcoin really was. Therefore the corporations that accepted bitcoin during the first half of 2014 were simply protecting their bottom-line by converting their digital currency directly into cash.

However as mentioned above, this effect is largely short term and as time goes on, increased merchant adoption will start to benefit bitcoin in immense ways. Now that the price volatility from the last parabolic rise is starting to cool off, merchants will begin to feel more comfortable about holding onto their bitcoin holdings. In addition, much larger corporations will start to move into accepting bitcoin and a great example is the recent news about PayPal embracing digital currencies. Even if PayPal and other large corporations do not hold onto their coins once accepted, and instead sell them immediately for cash just like the early merchant adopters, the effect will still be positive.

As mentioned at the beginning of this article, cryptocurrencies are an extremely difficult concept to grasp. Their decentralized nature means that no single entity is responsible for educating consumers about what bitcoin is. Increased merchant adoption on a massive scale will immensely benefit bitcoin since these corporations will assist in educating the masses. More and more people will discover, understand and invest in cryptocurrencies because of merchant adoption and this will outweigh the negative effects that the market has been experiencing in the short term.

In conclusion, the crypto-community understands that there is a finite supply of bitcoin and price corrections are healthy for long term growth. The mining subsidy will continue to be halved every four years until 2040 when all 21 million bitcoins are released to the public. If consumer and merchant adoption continues to rise exponentially, as they have been doing since inception, there is only one way that bitcoin can go over the long term, and that is much, much higher.

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