Bitcoin In 2014 - The 3 Critical Factors

Tyler Durden's picture

In the last year Bitcoin has gone 'viral'. As ConvergEx's Nick Colas notes, a lot has happened in 2013: Price appreciation, yes, from $20 to +$800 – the result of this online “Currency” going from science project to mainstream topic.  Volatility too – disruptive technologies seldom travel a level path. The story, Colas notes, is about to change, and there are three critical gates which bitcoin must navigate in the New Year.  First is regulation, and we will get a good dose of that next Tuesday and Wednesday when the New York State Department of Financial Services holds hearings on bitcoin and potentially issuing a ‘Bitlicense’ to help regulate business which transact in the currency.  Second is adoption – how will existing businesses incorporate bitcoin into their sales, marketing and payment channels.  Lastly will be volatility, which will have to come down in 2014 to encourage broader use. 

Via ConvergEx's Nick Colas,

If the ratio of dog-to-human years is something like 7:1, then a bitcoin year is something like 500 years to one regular 365 day turn of the modern currency calendar.  Money as we know it today – a physical representation of stored economic value that supplants simple barter – goes back to about 600 B.C.. That’s when the Lydians – in modern day Turkey – started minting coins.  It’s a lot easier to buy a sheep or a goat with a coin than working out a barter with the seller, and every advanced civilization since then has used currency in some form to make economic transaction easier.  In 2008, an enigmatic programmer (or programmers) unknown released a paper describing an online payment system called bitcoin.  At first it was basically a puzzle contest for cryptographic hobbyists, with a prize for solving an endless battery of puzzles.  Bitcoins were code-breaking bragging rights that could be exchanged with others.

Then, in 2011, bitcoin began to find an actual following.  Its anonymous nature – the core of the system does not hold name, address and other information typical of a standard banking system – made it ideal for illicit transactions.  Individuals concerned over online privacy – ahead of their time, it now turns out – also appreciated the anonymity as well as the algorithmically controlled nature of the issuance of bitcoin.  No open-ended checkbook (as the Federal Reserve enjoys) in the bitcoin world – every 10 minutes another 25 bitcoin appear.  And that’s it.  For all this adoption, bitcoin remained largely under the radar.

Last year, bitcoin had its debutante coming out party, and its price went from $20 to $230 to $80 to $1000 and closed the year at $800. We started writing about it in February, mostly because we thought it was interesting that society – a portion of it, at least – had sufficient faith in technology to hand over their heard earned shekels to distributed network of computers running a program written by person or persons unknown.  Worshipping in front of a golden calf is one thing – making offerings to a virtual calf seemed to merit our attention.  Over the course of the year plenty of other market observers tossed their two cents in the hat, mostly in hater mode.

Well, its 2014 and the value of all bitcoin outstanding sits at roughly $10 billion.  Does that mean the future of the currency is assured? Of course not – there’s still plenty to go wrong.  But what that hefty amount does demand is a reasoned approach to the fundamentals driving bitcoin’s future.  There are headlines aplenty about bitcoin now – still, I think, with a distinctly skeptical eye.  Which is fine.  But to paraphrase a chant heard at many a street rally, ‘Bitcoin is here; get used to it.’

In thinking through a framework to interpret what will be an eventful 2014 for bitcoin, here are the three points – we’ll call them Bitcoin Buckets for a touch of alliterative flair – to guide the discussion.

Bitcoin Bucket #1 – Regulation.  Since those little Lydian coins in 600 BC, issuing currency has largely been the domain of governments.  Granted, the U.S. itself only followed that guideline after the formation of the modern Federal Reserve 100 years ago.  But in general to issue currency you need some bureaucrats, a standing army, a bank, and some borders on a map.  Bitcoin has none of that, which makes it the currency equivalent of a “Stateless person” at the end of World War II or a White Russian after the 1917 revolution.


Initially, there was concern that governments – especially in America – would choose to squash bitcoin for fears over money laundering and illicit activity.  That was, after all, an early use case for the currency and one that continues to this day.  Then in the back half of 2013 two regional Federal Reserve banks published papers commending bitcoin for its low-cost facility of moving money, and it became clear that the U.S. central bank saw some value in the online currency.


We’ll have another data point on government’s take on bitcoin at a hearing next week in New York City, courtesy of the New York State Department of Financial Services.  The early buzz, from an interview on CNBC with Superintendent Benjamin Lawsky, looks promising.  He seems to see the potential for bitcoin and related services to provide much-needed competition to the U.S banking system.  Should merchants have to fork over 3-4% for credit card transactions?  Should credit card holders have to wait a day (or more, in the case of a weekend) for payments to post to their accounts?  Bitcoin-based competition – within the confines of modern anti-money laundering and “know-your-customer” laws – could help drive those charges lower.


In the end, bitcoin really isn’t competition for national currencies – at least not for quite a while.  It can be competition here-and-now for national banking systems.  It is a disruptive technology for transferring money cheaply, by virtue of the online system’s dual mandate of solving those puzzle and keeping track of all transactions as a requisite for a seat at that table.


Bitcoin Bucket #2 – Adoption.  One of the side benefits of getting on the bitcoin story early last year was that I had a lot of very entertaining conversations with computer nerds who had been early bitcoin adopters.  By virtue of their early “Mining” efforts – solving those puzzles in the core algorithm for bitcoins – many of them found themselves quite wealthy.  Not a few hundreds thousand dollars well off, mind you, but serious seven and eight figure wealthy.


At least on paper, that is…  But they were reluctant – and still are – to sell those bitcoins on a still illiquid open market.  And that’s where capitalism comes in.  Bitcoin millionaires are a ready-made customer base for a wide range of luxury and near-luxury goods and services.  If you want to peruse a list, look here:


The bottom line is that bitcoin adoption by merchants is just going to accelerate.  There’s a reason why Rodeo Drive and Madison Avenue have all the chic shops; that’s where the money is.  And now the money is in bitcoin as well.


Bitcoin Bucket #3 – Volatility.  You can’t make an omelet without breaking some eggs, so it should be no surprise that bitcoin was both a big winner in 2013 and extremely volatile.  April saw the largest exchange melt down on huge volume.  Later in the year we had a similar selloff as the Chinese government sought to crack down on asset laundering.  None of this prevented bitcoin from ending the year near enough to $1000 to prove there is some level of organic global demand.


To succeed as a method of wealth transfer – which we believe to be the cornerstone of bitcoin’s long term success – price volatility will have to decline.  Yes, that is a tall order for asset with very little issuance and no convenient way to short it.  We have no doubt that merchants will adopt bitcoin simply to access newly minted high net worth individuals.  But to keep them in the fold and increase the usage of bitcoin in other parts of their business, they will need to see some greater stability in the price.


To end on a cautiously optimistic note, this appears to be happening already.  The decision by the Chinese government to curtail bitcoin exchange activity could have sent the currency into free fall – the growth in demand inside that country was a big part of the bullish case for bitcoin.  And drop it did – to $600.  But not $100.  Or $10.  Since then it has bounced back to $800-900.  Baby steps on the road to lower volatility.  But steps nonetheless.

It is tempting to conclude these notes with ‘Bitcoin is going to $5,000!’, but I don’t think anyone can reliably predict where it will trade over the next year.  What does seem more certain is that bitcoin is a very important disruptive technology in financial circles.  If it were a private, venture backed enterprise, it would certainly be worth more than the latest mobile picture app or video game platform.  Which puts that $10 billion total valuation in some context.  But our three buckets put some context around the challenges ahead – regulation, adoption, and volatility.  We think that bitcoin will grow in relevance over 2014; we know it will be fascinating to watch.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
fonestar's picture

Enter the fonestar

BTFDemocracy's picture

Its all about Dogecoin now..

The currency isn't even 2 months old & has 40k subscribers on Reddit; Bitcoin has 100k.
Fastest growing 'non-default' reddit.

For those who say "I'll say its a currency when strippers and prostitutes accept it" ..

This is not logical or serious, but this world is not logical. WE ALL know that from reading here.

Mr Pink's picture

Please take your dogecrap spamming somewhere else.

It started as a joke and will always be a joke.

I hope you and the other 39,999 little dweebs can someday pool your 80 quadrillion dogshit coins together and buy a comic book

fonestar's picture

Yes, we're all aware of intelligence agencies envolvement in basically everything on the internet.  Yawn.

fonestar's picture

I guess this is news for people not involved in this circle for... oh, I don't know, the past two decades or so?

Pladizow's picture

Did you see the name of one of the refrences at the bottom of the paper - Tatsuaki Okamoto  - sound familiar?

fonestar's picture

Brother of the other mother?  Or just Sum Yung Gai?

Occident Mortal's picture

It's old news now.

Without the rampant 1000% price gain, the Bitcoin story is not worthy of the mainstream news. Without the soaring price it's just old news.

2014 will have other stuff in the news.

Bitcoin was fun. But it peaked with the congressional hearing.

fonestar's picture

Right, Bitcoin and the cryptocurrencies are "old news" hahaha.  Keep wishing hard.

My guess is Bitcoin could be anywhere from $5,000 - $10,000/BTC in January 2015.

madtechnician's picture

There are a lot more price triggers to come. Every piece of QE , each new bank bail-in , bail-out , bank failure , the US debt ceiling debacle and new problems in the EU will shoot btc higer. These problems are never going away so the bitcoin price trend has only one direction to go in.

gold-is-not-dead's picture

and even without those triggers, just two more years to 12.5 btc per 10 min

madtechnician's picture

And as if the ignant fucks on here will even know what the fuck you are on about ........ (LOL) /

/Sarc ON.



boogerbently's picture

I don't know about Bitcoin as a "currency", but it would make a good TRADE.

Volatility is not good in a "currency".

You could buy and sell in whatever currency provides the best return.

GetZeeGold's picture



Bitcoins....leaving slavery.....only to go in to captivity.


Don't leave home without your tracking might get lost.

Bindar Dundat's picture

As a student of the BTC invention I can suggest this is one of the most thoughtful and insightful articles written to date on the issues relating to bitcoin. Well done.

chemystical's picture

"Thoughtful"?  "Insightful"???

With all due respect - and no matter which side of the Btc fence you're on - this article was neither.  It didn't tell us anything we didn't already know, and it took a lot of time to do that. 

If the purpose was to inform, then it was an abject failure.  If it's purpose was to provoke thought, it was an even worse failure.  If it's purpose was to persuade - as it appears to be - then it was an abysmal failure: nothing therein would budge me even a picometer in one direction or the other.

I've yet to read the readers' comments subsequent to yours in the thread but I have little doubt that they'll be more informative and more thought provoking and - as always - more entertaining than the piece they're commenting on.

Bindar Dundat's picture

I suppose I could have said from a " business prospective" it is thoughtful and insightful piece of work.  


Having said that when someone does not understand the basics of business it would be hard for you to get it.


I will try harder next time to attend to your slow mind -- NOT

FinalEvent's picture

Since BTC is capped, FIAT is the one creating volatility!

satoshi101's picture

Bit-Tards will deny that DOD-ARPA NSA/CIA  created the TCP-IP internet ( 1960's), so its fairly easy to see that they can deny that SATOSHI (1996) was an NSA scientist.


fonestar's picture

There's a good chance Satoshi was INT.  Big deal, I'm still buying.

satoshi101's picture

Just 2 months ago you said that BTC wasn't NSA, and now today your saying "SO WHAT", ... my you have changed.

Wasnt' that the entire purpose of BTC was to 'fuck the system?', now even you admit that BTC is the system, yet you still love to bit-fuck(tm) the weak and stupid.

GetZeeGold's picture



Embrace the surveillance.

fonestar's picture

Go back and read my damn posts bonehead, I've always saild .mil .gov was the biggest employers of advanced cryptographers.  The entire internet exists largely due to the contributions of these people.

satoshi101's picture

Dude, I was there I worked in this shit since the 1960's and NO the CRYPTOGRAPHERS didn't develop TCP-IP.

This is the problem FONESTAR, if you actually had any experience or knowledge, of mathematics or science, you might be able to pull a little shit off. But tonight I can see your finally losing, cuz usually your the guy with grace, but tonight you said 'damn', which is quite surprising for a bot to get mad, cuz usually you are without emotion.


The "ENTIRE" internet was developed by DARPA(DOD-MIL-NSA) back in the 1960's so that nuclear silos could communicate in the advent of a full nuclear war.

Cryptography had not a fucking thing to do with the invention of TCP-IP ( the internet protocol ).


I know what your getting too, your now admitting that EVERYTHING 100% ONLINE&ON-COMPUTER is 'owned' in the somodist sense by the US-MIL & NSA, and yes it is, microsoft, google, and et-al.

Trouble is foney, not only are you fucking with the wrong person, not only do I know my CS and MATH shit, but I also worked for the NSA back in the day writing cryptography algo's. So you can't shit me, ... I was there, and I know who has done what. I know where all the body's are buried.


But me & you have had this battle before, ... lets just agree that your doing a good job, ... and we all love you for your PASSION, cuz I'm the first person on earth to respect a man with PASSION, we just need you to channel this passion into something GOOD.

I love you fonestar. xxx0000xxx

Of course I'm saying this cuz I drank bei-ju all night, but so what :)


Yes, the internet exists because MIL-DOD-NSA, but not because of CRYPTOGRAPHY. INTERNET is 1960's, but virtual currency is late 1990's.


Lastly, fonestar I deeply apologize for allowing myself to fall into this trap, as it bores the fucking hell out of me to talk about BITCOIN. I would much rather talking about how we can take the USA back from the ASSHOLES.

madtechnician's picture

Actually ass hole you are wrong. TCP/IP was developed by DARPA almost by accident. At first 2 US University campus research departments needed to connect their mainframe computers together , when a 3rd university requested access to the network they came up with a clever protocol which then evolved. Nuclear silos were never connected into that network.


Now you are also saying you worked for the NSA back in the day writing Cryptography algo's ? You are the biggest shill bullshitter on this forum ....

chemystical's picture

earlier he finally at least replied to my repeated question where I asked why he admittedly sold Btc at around $200/Btc "to pay some billls" and then a few months later bought back in at $800. 

Recall that I asked why anyone with such a 24/7 "buy buy buy" and "they might reach a 5 or 6 digit conversion rate" message on this (and at least half a dozen other sites) would ever sell and then pay 1600% premium (annualized) to buy them back?

I asked whether he lacked the courage in his convictions that he wants everyone else to have, or whether he didnt have a pot to piss in and didnt have enough credit to "pay some bills".

He replied but did not answer.  His reply: "Fonestar says a lot of things."

A few days ago he commended a poster for quoting and linking a reddit post.  He said that "reddit is an excellent source of information on Btc".  Well that curious because a month ago he lambasted a different poster who also quoted and linked something from reddit: "So we're supposed to believe what some idiot on reddit said?"

I know that there have been others but it's not my habit to memorize this pumper's inconsistencies.

One of the litmus tests for a liar is that they can't consistently stay on message because they can't remember all the lies.  The truth has no such impediment, and I speak truthly about this guy.

At least he did refently inadverantly admit that this was a pyramid scheme.  He posted that Btc was "the ticket to riches".  I called him out and pointed out that it's the early adopters who will grow rich off the subsidy provided by others (as, for example, the folks who bought at $1250).  Btw I don't know yet whether it is a scheme, and I did not say that it was...he did.

Btc does have momentum, and there are and will be plenty of holders who tenaciously cling to their beliefs no mattter what the fundamentals may some day indicate (picture Randolph and Mortimer Duke), so even if this does unwind badly, it likely won't unwind which case I'll reverse Fonestar's words:  you don't want to be the last one selling.

madtechnician's picture

Hey man it wasn't long ago that the idiot brigade was saying it was a Ponzi , a Tulip , a Pump & Dump , a Scam , you guys said it was going to crash and dissapear in 2009 , 2010 , 2011 , 2012 , 2013 , now your saying it was invented by the Fed. There is no consistency in any of your theories or arguments. You just pluck random shit out of thin air and throw it at the wall to see what sticks. So far none of you shit has stuck because it is precisly that - mindless bullshit.

chemystical's picture

Irrespective of all else,

"you guys said it was going to crash and dissapear in 2009 , 2010 , 2011 , 2012 , 2013"

You guys??  2009?  2010?  2011?  Please provide a link to ANY zh thread dating from those years in which posters said ANYTHING abt Btc. 

Hyperpbole much?  Hyperbole too much?? 

"Now you're saying that it was invented by the Fed"

Now???  Where have you been.  That's been a recurring speculation for at least a year and has been posited hundreds of times herein.

Re-read your blather and self-apply it liberally.  The ablation will do you good.

madtechnician's picture

You think some of your shit is actually gonna stick ? FAIL ....

chemystical's picture

Not one iota of shit.  I simply asked you to put up or shut up.  And as usual you did neither.  I'll accept that as an admission that you can neither put up nor shut up.

You had the opportunity to put your bitcoins where your mouth is, and as usual you declined to do so.  Ironically you say that I fail.  

Continue along that same path I suppose that you'll still expect to have a shred of credibility.


P.S. what kinda vaccuous ditz still says "fail"?  Were you the same poster who earlier in the week - after failing to present any support for his bullshit - said I was a newbie poster and then said stfu?  Stfu?  Bravo to your ilk.  Your superiority astounds.  What's the protocol in Puerile World?  Was I supposed to reply to "stfu" with: "make me"? 

madtechnician's picture

Until you fucks come up with an actually semi intelligent constructive argument against bitcoin then all I will give you is a fuck vacation. If you could even try to demonstrate an IQ slightly above average then lets talk , until then keep sucking out those dried flecks of shit which have actually managed to dry up on the insides of your nostrils.

Matt's picture

"I hope you and the other 39,999 little dweebs can someday pool your 80 quadrillion dogshit coins together and buy a comic book"

millions of dollars a day trading hands just on DOGE/BTC. At least the exchange is making a few grand a day off it.

tip e. canoe's picture

It started as a joke and will always be a joke.

in an era of "It's All A Fucking Joke", so what?

the interesting piece of the doge experiment is that the currency centers around the concept of gifting, an economic variable with a non-zero value that has been missing in economic systems since the euros started sailing across the seas, killing off most of the indigenous ways and ghettoizing the rest.

one of the advantage of gifting is that it spreads the distribution of the currency across a wider net, securing the system with a forgotten, but innate, ethical principle.

time will tell whether that will thrive (or even survive) once the selfish miners move in.    with scrypt, everyone is restricted to their GPUs (and their botnets of course).   when the security is maintained by a strictly proof-of-work algorithm, there's always that use of energy thingie lurking in the background.

however it turns out, much interesting, more so than comics.  or bitshit for that matter.

to the moon...bitchez

freedogger's picture

"dogecoin is a joke" 

Averaged $40 a day mining and heating my house up here in the great white north for the past 11 weeks. The current operation involves mining the DOGE, sell them for bitcoin on an exchange and use the BTC on to pay the electric and any other bills with what is left over. I'll probably keep a few hundred thousand for the long term. At some point I'll unload my five 7970 gaming cards on eBay. 

I have two duct fans pulling the heat of the rigs that send it to the main furnace duct. Both the basement and upper floor are toasty warm, about 2800 square feet. We have had a week this year where it was below - 20 Celsius, that was the only time I turned on our traditional heating. 

tip e. canoe's picture

wow, genius.   you should do an instructable on your system and slap your addressess for donations.   would be cool to rig it up on a hot water heater as well, as long as you have a cool basement with good airflow in the summers.

now if there were a crypto that equalized that incentive over time (maybe a combined PoW/PoS system?), someone might have somethin'.

p.s. how does work?   they were down for maintenance when i clicked.


freedogger's picture

Old hardware + new GPU + electricity is hardly e=mc2.

Here's the guide:

tip e. canoe's picture

i meant hooking it up to the heating system.

freedogger's picture

Sorry, I thought you were being sarcastic,. I just cut a hole in my main furnace duc, pplugged a new duct from there with two 150 cfm fans that I got from home depot into that. 

tip e. canoe's picture

no worries, to be expected here.  but i actually think it's a genius idea.   kill 2 birds with 1 electricity bill.

so you're just sucking warm air off the computer?   do you have any fans blowing onto the GPU's or no?

dark pools of soros's picture

and you have to cash out to btc to get any fiat for doge like all the other alts..  ltc might get some traction there but it sat on its lead all last year and did squat to better itself.


so all alts are in a toss up stage

fonestar's picture

I don't understand why LTC is getting pummled but then again it was less than $5 just a few short months ago.

The Ponz's picture

LTC is being undermined by DOGE. More and more GPU miners are switching from LTC to DOGE. Many of those miners are just mercenaries, moving to the currently most profitable scrypt coin, but I bet some are DOGE true believers. Doge may have started as a joke, but now it's got a $60+ million market cap, and a friendly fast-growing community.DOGE's quick rise, coupled with LTC's dip, illustrates the value of community to these coins. And how quickly a front-runner can fall back.

freedogger's picture

Very true and a lot of the horse power on the network is from the pools that automatically calculate the most profitable coin and switch to that currency. If you configure your rig to point to that pool,  you could have several different coins each day. 

The Ponz's picture

Also, many thanks for all your excellent work here taking on the trolls telling the truth about crypto. I enjoy your wise comments.

fonestar's picture

Thanks.  I enjoy taking a byte out of their sorry arguments where I can.

mister33's picture

How about this for the truth...

"JPMorgan’s proposed system involves creating 'virtual cash' that would sit in an online wallet, reminiscent of the computer files that hold Bitcoins on behalf of their users.

The JPMorgan system would also create a public record of transactions made using the technology – a feature that would appear to mirror Bitcoin’s use of 'blockchain', a massive block of code stored across a peer-to-peer network of computers that acts as a public ledger of all Bitcoin transactions."

This club is staying silver and golden :)

madtechnician's picture

That is really old news and the patent was not granted anyway. Even if they did manage to pull it off who would buy into a currency created by an insolvent bank ?