By now you should have noticed that Bitcoin price has crashed from $1100 in 2013 down to only $330, and has decreased by more than 50% since the beginning of 2015. This is probably the worst news ever for Bitcoin miners, and according to some people, the digital currency might possibly be “the worst investment” in 2014… Is this really the case? What are the fundamental reasons behind this catastrophic drop?

As you can see, Bitcoin is sill a pretty new currency and thus it’s a wonderful concept. However, the government, which has always been behind the technological curve, would eventually catch up to the technology and they, of course, would do what governments do – to tax and to regulate. With this taxation and regulation, as you’re starting to see now, a lot of the advantages of the cryptocurrency are being lost. It’s actually becomes easier to use conventional currency than the digital currency in many ways and it’s certainly a lot safer.

Bitcoin is the leader in cryptocurrencies, but even so it falls far short of critical mass. If you consider the tens of millions of businesses in the United Sates alone, and the hundreds of millions more worldwide, the number of merchants who actually accept Bitcoin is only a fraction of a fraction of a percent! The Business Review reports that less than 100,000 businesses accept Bitcoin. So you know a merchant will accept cash, they will take credit cards and debit cards; but when they do accept Bitcoin, it’s actually sometimes quite surprising! Long term there is only going to be room for 2 or maybe 3 digital currencies.

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Surprisingly, the competition for Bitcoin is not going to come from other crytocurrencies, but rather from conventional payment methods such as cash, debit cards, PayPal, Wire transfer… If you look at all the cryptocurrency competitors such as Namecoin, Litecoin,… only a few of these are actually going to survive a couple of years from now. There are merchants who accepted Bitcoin previously but reverse course and no longer accept the digital currency. That percentage of merchants who stop accepting Bitcoin represents the attrition rate. Now new merchants accepting Bitcoin are still growing, but that growth rate has slowed pretty dramatically. It’s important that the growth rate is at least twice as high as the attrition rate, or else the Bitcoin prices will come under pressure.

So that’s why the prices of Bitcoin are dropping so dramatically over the past few months. There are chances that it will recover, but it’s almost impossible to tell when that will happen, especially when the governments put pressure on Bitcoin when the cryptocurrency threatens to become a truly decentralized payments network. Has Bitcoin failed too big? We just have to let the market decide.

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