Note: there is some disagreement as to whether the term “market capitalization” can legitimately be used to refer to the figure that is the subject of this article. The term is typically used to refer to the total value of all shares in a company, although some Bitcoin users also use it to refer to the total value of all bitcoins in existence, which others believe is incorrect because bitcoins are not “shares” in anything. To avoid confusion, I have decided to avoid using the term entirely.
The night before March 28, the Bitcoin price shot up another six dollars, leading Bitcoin to hit a crucial milestone: the total value of all bitcoins in circulation reaching one billion dollars. The price first reached the barrier at 05:15 GMT, surging past the critical price level of $91.251 with 10,958,700 bitcoins in circulation. The jump followed one and a half weeks of rapid growth that many believe was precipitated by an announcement on March 16 that a Eurozone bailout of Cyprus would be partially funded by a 6-10% levy on all Cypriots’ bank account savings. In other countries troubled by the Euro financial crisis such as Spain, many quickly became concerned that their own savings will be next – a worry that the Spanish government has only heightened, and as a result Spanish interest in Bitcoin is going through the roof. Another reason why the Bitcoin price may have shot up is a recent guidance report released by FINCEN, in which the US regulatory agency wrote that mere users of Bitcoin are not subject to federal money transmission regulation, although exchanges are – a strong step toward resolving legal worries that have acted as a chilling effect on business adoption for the past two years.
Psychologically, the milestone is a hugely important one. If the day that Bitcoin broke past $31.91 can be seen as the day that Bitcoin proved to the world that it did not die in 2011 and is only getting stronger, today is the day that Bitcoin officially joined the big leagues. Joining the so-called billion dollar club places Bitcoin above over 2000 out of 2677 companies trading on the NASDAQ, all but a few dozen non-publicly traded startups in the US, and even the money supply of 20 countries around the world – making claims that all national currencies are somehow legitimate while Bitcoin is not rather specious. Regardless of any comparisons, one billion is the point at which, according to some definitions, a company moves from being considered “small cap” to “mid-cap”, and one billion the mark at which many institutional investors start to see a particular market or investment as something to be taken seriously.
This fundamental shift is happening in more places than just the market charts. In February, Coinlab announced a deal with leading Bitcoin exchange MtGox in which Coinlab would take over MtGox’s US and Canadian customers, and Teri Buhl writes: “there is a hint in their new deal that shows they are working to find a way to get liquidity to Forex broker dealers or private wealth managers to help high net-worth individuals invest long-term in bitcoins.” In March, the Malta-based Exante announced a Bitcoin hedge fund targeted to institutional investors primarily in the EU. Finally, two weeks ago Tradehill, a Bitcoin exchange that operated between June 2011 and February 2012, came back from the shadows to offer a new product: Prime, a Bitcoin exchange specifically suited to high net worth, accredited investors. The exchange already has 75 accredited investors signed up, adding more every day. Tradehill’s Jered Kenna, who has spent the past year cultivating relationships with such individuals to make Prime a reality, said: “Bitcoin has really grown in the past year and a half. There is a lot more institutional money coming in, as well as regulatory attention. In the next year or so, I think you’re going to see a lot of conventional mainstream businesses adopting Bitcoin. You’re going to see a lot more venture capitalists moving in, and a lot of startups. You’re also going see a lot more people endorsing Bitcoin, with many public faces.”
On the non-financial side of the Bitcoin economy, the situation is similar. When Silicon Valey investor Ben Davenport recently invested into BitPay, he wrote: “Bitcoin businesses, until recently, have largely been bootstrapped. The reason is, until recently, when an angel or VC has looked at Bitcoin businesses, they saw a currency with a total market cap of about $150 million. That’s too small a total addressable market to be interesting. And if an investor is savvy enough to see the potential for Bitcoin itself, then they also realize they can capture that upside without the business risk, simply by buying bitcoin. Now though, we’re getting to the size where an investment in an amazing, well-positioned team like the guys at BitPay makes a lot of sense, and will also ultimately help increase the overall Bitcoin adoption rate. I predict we’ll see the VC flood gates open within 12-18 months — I’m just trying to be a little bit ahead of the curve there.”
More and more, institutional investors are becoming interested in Bitcoin from all sides: Bitcoin the financial asset, the Bitcoin community as a customer base and the Bitcoin economy and its startups, and the three feed on each other. As the Bitcoin price goes up, Bitcoin receives more media attention and therefore more new users, as Bitcoin receives more new users existing Bitcoin businesses get larger and new ones appear, and as the Bitcoin economy booms so does its price. Many believe that the current rise in the Bitcoin price is simply a bubble, and certainly at some point, whether now, in three months or in two years, a bubble is bound to come. However, there is also genuine adoption rising rapidly behind the scenes; recently, BitPay announced that the company had processed over $2 million worth of payments over the first twenty five days of March.
From here, it is hard to say just how far Bitcoin will go. In August 2011, Roger Ver made a bet that Bitcoin would outperform gold, silver and the stock market by a factor of 100 – “this means, Ver clarified, “if silver is up by 100% over the next 2 years, I think Bitcoin will go up by 10000%.” Right now, the top performer out of all these investments is the stock market, with the Dow Jones going up by 28% from 11372 to 14559 so far – meaning that Bitcoin would need to go up to $296 by August 4 for Ver to win his bet. Even in August 2012, the thought that Bitcoin could possibly climb so far in only a year was pure fantasy. Now, anything seems possible. But this is also a good time to be cautious. It is often said that past performance in no way guarantees future results, and Bitcoin users who have seen their Bitcoin portfolio grow to over half of their net worth should seriously consider partially cashing out, lest Bitcoin crashes back to $30 and they lose everything they gained. Ultimately, Bitcoin users should well remember that regardless of whether Bitcoin will be at $30 in four months or $300, its underlying value is the same: Bitcoin lets you instantly, securely, and anonymously send digital payments from anywhere in the world to anywhere in the world without any governments, corporations of banks, and for negligible fees. This is the true promise that Satoshi worked so hard to bring to us all, and it is a promise that all of the developers, advocates and businessmen of the Bitcoin community have worked so hard to deliver. Now, with Bitcoin at $1 billion, our job as a community is simple: don’t lose track of what we’re really here for, and keep on going.
