Empirically, Bitcoin seems to be growing exactly how it should for long-term sustainability – the problem is, even with tons of adoption…we’re seeing a tumbling price.

Why?

Here’s one possible explanation:

It’s a growth phase where one side of the system outpaces the other – typically referred to as ‘growing pains’.

As an early adopter, we know the best way to get Bitcoin accepted by the mainstream is to spread the word & onboard new businesses.

This campaign has been very successful – we’ve seen countless companies embrace Bitcoin in the past months (Overstock, Time, NewEgg, TigerDirect, Paypal, etc.)

That sounds like good news – So, why is the price still going down? Is this temporary, or a systemic problem?

Here’s the thing…

As we onboard new businesses – they’re (rightfully so) skeptical of the price fluctuations.

In turn, most of these companies automatically convert the BTC they receive into a more stable currency, like USD.

This causes tremendous downward pressure on the market, as sell orders need to be created and executed instantly in order to fulfill this volume.

Let’s say we get 10 HUGE companies to accept bitcoin. They each begin generating $1m / day in Bitcoin.

If these companies auto-convert back to USD – what we’re seeing is $10m in sell orders per day.

This means in order for the price to stay exactly where it is, there needs to be at least $10m in matching buy-orders.

If there’s not enough buy orders at the existing price, the price moves downward until more liquidity is found.

That seems to be the essence of why we’re seeing so much good news, but a downward trending price.

Now the main question is – is this a systemic problem or is it temporary?

The answer is very temporary – it’s a growth phase where one side of the system outpaces the other.

If you look back 1 year — we’ve on boarded TONS of businesses in this time, but I have a feeling very few new people have decided to jump in on bitcoin as it’s gone from $1,000 to $300 in 12 months.

So we have more businesses accepting BTC to satisfy the existing user-base, but the ecosystem isn’t acquiring new users at a speed that matches the business growth.

At a certain point, things will ‘click’ and we’ll see another ‘run’ where BTC go from $250 – $300 back up to new highs in just a few days.

I’m seeing lots of people still on the fence, but very open minded and interested in jumping in when the time is right.

They feel like something is happening – they keep seeing new businesses accept it. They’ve heard about Bitcoin from several friends.

News coverage of BTC has taken it from an social outcast to something that’s covered on a daily basis.

The awareness is up, but the actual adoption from the consumer side has yet to kick in.

We’ll probably see the ‘next wave’ of users join BTC when the price hit’s a low & the majority of people on the fence decide it’s time to get in.

This will probably happen with a 1-2 punch. The price will hit a low, while a string of good news comes out from the adoption side – like ‘amazon accepts bitcoin’ or something that effect.

As opposed to the last ‘run up’ – this time, there are actually some brilliant apps available to buy, sell and use Bitcoin.

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Yesterday (12/19/2014) saw 103,161 total BTC transactions – this was an all-time network high: Blockchain.info Graph

Interesting times. Let’s see what happens.

– J