The price of bitcoin reached $1,000 again today on Japan-based bitcoin exchange Mt. Gox, following the news this week that online retailer Overstock.com had started accepting bitcoin as a payment method.
The peak this time around was $1,011 on Mt. Gox. Not a record but surely a notable threshold to surpass once again. The last time it broke through to four digits was back on 5th January amid news that Overstock would embrace bitcoin at some point later in the year – but it turned that around faster than everyone expected.
On 7th January, the Gox price reached $1,041.99. Around the same time, social gaming company Zynga also began testing bitcoin on its platform, likely a contributing factor to that particular price spike.
Overstock’s Announcement
It is clear that the decision by Salt Lake City-based Overstock to accept bitcoin is leading to increased interest in the digital currency. Previously, Overstock had announced that it would begin accepting bitcoin in the second half of 2014.
Those plans were accelerated, and the retailer started accepting BTC for all its items. The company, started in 1999 by CEO Patrick Byrne, is publicly traded on the NASDAQ stock exchange. Byrne told CoinDesk recently that he believes in the possibilities that bitcoin can present in the free market.
“In an ideal world we’d go back to gold so you’d have a monetary system based on something that government mandarins can’t expand at the stroke of a pen,” he said. “We’re not going to go back to gold, but bitcoin shares that virtue. It is mathematically if not physically constrained.”
Payment Success Influences Price
Byrne’s belief in bitcoin is paying off, even within 24 hours of the announcement. Overstock, the largest organization to ever accept bitcoin, had made $130,000 in BTC sales spread over 840 orders after its first day of accepting it.
#Bitcoin‘s first full day on @overstock.com was a huge success: 840 orders, $130,000 in sales. Almost all new customers. #stunned
— Patrick M. Byrne (@OverstockCEO) January 10, 2014
Items most purchased by #bitcoin users at @overstock: sheets, mobile phone cases, flash drives, bath towels. I expected more video cards.
— Patrick M. Byrne (@OverstockCEO) January 11, 2014
Such great success in short order is sure to lead to other companies accepting bitcoin. A popular vertical would be online retailers. In fact, there have been rumblings that electronics retailer Newegg is planning to accept bitcoin sometime soon, and that company is certainly paying attention to Overstock’s triumph.
It’s a possibility, #staytuned :)RT @thedatascape: @Newegg Do you have any plans to add Bitcoin as one of your payment methods?
— Newegg (Official) (@Newegg) November 23, 2013
It seems that a pattern has developed in terms of merchant acceptance of bitcoin. In the case of Overstock’s news, the BTC price goes up as a well-known and large retailer joins the bitcoin fold. But we’ve also seen the opposite: bitcoin prices took a big slide on negative China news back in December when Baidu and China Telecom both stopped accepting BTC.
Volatility
When we see bitcoin succeed as a payment mechanism, we see the value of bitcoin rise. Recent good news coming from Overstock as well as the Coinbase partnership with BitMonet to enable in-app bitcoin transactions on Android are positive signs that payment transactions will grow in volume.
Nevertheless, a recent research report submitted to members of Congress entitled “Bitcoin: Questions, Answers, and Analysis of Legal Issues” discussed the possibility that bitcoin could undermine the US dollar at some point. The news of that report mixed in with positive payment news for bitcoin has likely led to a good degree of volatility in the past few days.
However, even that report pointed to network externalities like the adoption of bitcoin as a payment method as a way the bitcoin currency could become successful.
“An important force that is likely to hinder such growth in Bitcoin use is the strong preference for dollar use generated by what economists call network externalities (i.e., the value of a product or service is dependent on the number of others using it).”
The CoinDesk Bitcoin Price Index, which is a blend of several different exchange prices, has been hovering around $920, peaking at $934 today.
Bitcoin’s all-time price high occurred on 29th November 2013, when it was valued at $1,242 on Mt. Gox.
The price is clearly contributing to increased Wall Street interest. Fortress Investments, for example, has been reportedly planning a bitcoin-related fund. And the New York State Department of Financial Services has planned a hearing to discuss virtual currency-based policies, and perhaps the idea of issuing BitLicenses for virtual money transmitters.
Coin image via Shutterstock