Has bitcoin put its demons to bed?

BitcoinPerhaps we should begin referring to 2014 as the year of volatility. Several assets underwent notable moves; the Russian trouble bottomed out, US indices broke records and the euro dove towards a nine-year low.

Amongst all this, bitcoin still took the title of worst investment of the year. The cryptocurrency weathered various challenges and reached notable milestones. As a consequence, it has perhaps offered to those online currency trading an intriguing insight into what its immediate future might hold.

The price of this virtual currency has been especially volatile over 2014, mostly at the expense of those who held their wealth in the form of bitcoins. Nevertheless, some people think that 2015 might be the best year yet for this currency.

Although some parallels exist between bitcoin and currencies such as the USD or the GBP, it is fundamentally different from them. Bitcoin has no centralised regulatory authority and there is no central bank equivalent to the Federal Reserve for USD or Bank of England for GBP to regulate its quantity or circulation.

The eventual quantity of bitcoin that would end up in circulation was determined at its inception, and its creation is dictated by a complex mining process that is carried out by several computers connected to the expansive bitcoin network. Therefore, nobody is able to intervene in order to control money flow, value or supply, which usually happens with other currencies.

Bitcoin has no territorial identity, such as the USD or the GBP, which are the official currencies for the US and the UK respectively. With no major economy to back up its legitimacy, bitcoin’s price can fluctuate wildly.

At the beginning of this year, bitcoin reached values of over $900. It is currently trading at under $300.

What happened? First of all, bitcoin was affected by the collapse of its oldest, and at the time largest, exchange: Mt. Gox. Then, a founding Bitcoin member faced allegations of money laundering. The currency also faced continued hacking scandals and featured prominently in law enforcement drives aimed at bringing down several black market sites.

Perhaps worst of all, the cryptocurrency has slid towards irrelevancy in the second half of the year. Negative headlines were replaced for a time by no headlines at all, which presents a far more worrying problem for bitcoin.

But 2014 has not been all bad for bitcoin. It says something about how much impact bitcoin has made that, even though its price has endured such a volatile year it has continued to be accepted by more and more retailers. If that trend continues throughout the year, then 2015 may bring about some much needed stability to the cryptocurrency.