Bitcoin bubble

Factors Bringing About The Next Bitcoin Bubble

By Dominik Zynis, Head of Business Development, Mastercoin Foundation

The Mastercoin Foundation is heavily invested in the success of Bitcoin, as most of our funds are denominated in bitcoin with the exception of the development Mastercoins which vest over eternity. So we are generally concerned about the price of bitcoin and whether ecosystem is evolving in a way that will increase that price and therefore lower our burn rate.

It is difficult to attribute direct causal relationships to events like the rise of bitcoin price in 2013. However, factors such as the following would appear to be major factors contributing to the double bubble that happened in 2013:

• the halving in late 2012
• the emergence of ASICs which are predominately produced by Chinese manufacturers
• an influx of interest by high net worth individuals,
• continued merchant adoption coupled with consumer adoption

So this begs the question of why the stagnation in price over the last 6 months even though we are seeing even more investment activity in the space.

If one views this from the perspective that the market is a guiding force perhaps one can deduce some patterns that affect the price leading to boom and bust periods.

Pattern #2: The trans-formative capability of the crypto economy to communalize new regulatory burdens, the same way that miners communalize the transaction validation function.

When one reviews the two run ups that began in late 2012 and culminated in the high of December 2013, one can see a lot of “investment” activity in the mining space but also in innovative marketplaces that were shut down due to inability to comply with SEC regulations (i.e., Bitfunder, BTCT.co, etc).

In order for one to participate in those one needed to have BTC to make group buys or ASIC’s, for example, or invest into various securities offerings. But today with the many cloud mining options on the market get away with using Mastercard and Visa to purchase Bitcoin mining power.