Prices on Bitcoin continued their post SegWit rise, cruising toward $4000 and above. The price is not a surprise to some analysts who had predicted the rise even from the start of the year, though even among Bitcoin fanatics, the $4000 mark has come quickly. The rise in prices has been driven, at least in part, by the stability of Bitcoin created after the activation of SegWit and the increasing demand for Bitcoin in Japan. These two features have created a sort of perfect storm of stability for Bitcoin investors. Even as the cryptocurrency becomes more main stream, the problems that had plagued it in years past seem to be finding solutions.
The SegWit solution has created a new era of stability for Bitcoin, as the divided processing mechanism has instituted new and more rapid transaction speeds. The technology has opened a door for greater liquidity, as transactions are now simpler to process and faster, creating space for increased micro transactions. As the scaling crisis abates, the liquidity created by the change will produce a greater level of stability.
Liquidity and Stability
The increasing liquidity of the marketplace has created more numerous small-block transactions. The volatility of the Bitcoin marketplace has largely been due to large-block transactions which, when settled, had the power to shift prices drastically. While these large block transactions are still taking place and can disrupt the stability of Bitcoin, as the increased liquidity hits the market via small transactions, the large-block trades have far less effect on the prices.
This increasing stability has created a new foundation for the value growth. As the general public becomes more aware of Bitcoin via price increases, and volatility decreases, the market will continue to gain traction. Usability will continue to increase, and the values will continue to rise. Liquidity leads to stability, which leads to greater investment, and price increases.
Unlike other investment vehicles, then, Bitcoin’s price increases are actually a sign of strength. Even substantial increases like what has occurred over the past week are signs of greater stability, rather than volatility. The nature of Bitcoin as currency and asset has created a system that thrives on stability for Bitcoin (asset) but grows with liquidity (currency).
While many say that the values have peaked, the nature of the stability of Bitcoin would tell us differently. The value will continue to rise as mainstream adoption continues to grow. Liquidity and stability will draw greater numbers of users and investors into the marketplace, and prices will continue to rise. It would make sense to see Bitcoin over $5,000 before the end of the year, and perhaps higher, should mainstream adoption move rapidly.
Valuation of all currencies is based on public acceptance and usefulness. The value of a dollar, post gold standard, is only based on the usability in the marketplace and acceptance by users. Bitcoin is no different and will continue to gain traction.