Chart

The hype generated by insanely high prices does increase media attention and as a result increases the number of people buying Bitcoin. These buyers, however, rarely have more than a speculative and short sighted fascination. The second prices start to fall they will sell out. While this is a factor in the high volatility, it is not the whole story. The distribution of wealth is likely a much greater contributor to high volatility. According to business insider 47 individuals own about 28.9% of Bitcoins. This means that if a few of these individuals decide to sell out for whatever reason, it would likely ignite a chain reaction causing prices to fall further still. When prices reach a peak the temptation to sell out is certainly much greater for the handful of individuals than at any other time.

There is also a good chance the 144,000 Bitcoins which the FBI seized from the Silk Road and auctioned off have gradually made their way on to public exchanges. Hopefully, lower prices may decrease the temptation of the purchasers of said Bitcoins to sell them since at the time they bid they were not likely anticipating the gradual fall in prices. Beyond speculation regarding the Silk Road stash it is a fact that more bitcoins are mined everyday. Though the market value is declining, when you factor in the total bitcoins in circulation roughly 15% of the fall in value can be attributed to new Bitcoins being mined.

As the price falls, media hype will die down resulting in fewer speculators, the lower price would be a sign of more Bitcoins in circulations reducing the barrier of entry for those who didn’t have the advantage of early adoption, the FBI’s Silk Road stash will be auctioned off and will have either been sold on the open markets or no longer worth selling, the rate with which Bitcoins can be mined declines due to increased difficulty, and volatility will go down. Many people believe the falling price of Bitcoin is a sign of it’s inevitable collapse, however, regardless of whether Bitcoin bottoms out at a fraction of a cent it will have lower volatility which increases its usability as a store of value and its chances of becoming the first true global currency.

The post Falling prices might actually be good for Bitcoin appeared first on CoinBuzz.