Is Bitcoin Over the Hill?

Is bitcoin getting the same attention it once was?

Some are suggesting that the digital currency is losing its lustre, as enthusiasm wanes. But, how can we measure that, and whose enthusiasm are we talking about exactly?

The technology industry can be a fickle and fashion-led business. Research firm Gartner even has a name for it: the hype cycle. The cycle is a line graph charted on two axes, with visibility on the vertical, and maturity on the horizontal.

The Gartner hype cycle: Image via Gartner

It starts with a technology trigger (that would be Satoshi’s invention of the distributed consensus network model that supports bitcoin): the technology’s visibility rises, quickly shooting to unsustainable levels, as it begins appearing more in the media, and on PowerPoint slides everywhere.

Soon after, the technology fails to meet those inflated expectations. Experiments fail, and failures shake out. Visibility slumps. After this readjustment, the world realises that there is a way forward, but that it’s more practical. Having shaken off the unsustainable expectations, people begin to see how the technology could benefit them.

Finally, the technology reaches the plateau of productivity. Visibility will never be as high as it was at the peak of excitement in the early days, but that’s no bad thing. Exuberance has been replaced by evidence, and the technology is accepted.

The hype cycle shows up a lot with enterprise technology markets, which are abuzz with fashions, but it may also apply to bitcoin. One recent post on the Bitcoin Talk forum sounded irreconcilably gloomy:

“The truth is that the general bitcoin community is growing tired. Tired of falling prices. Tired of scandals like Mt. Gox. Tired of rigs they invested in not paying off like they hoped. Tired of maintaining those rigs.”

It later attacked mining companies for scamming users and lambasted the altcoin community for tarnishing bitcoin’s credibility:

“Crap coin after crap coin which honestly just makes the whole industry look like a joke. Potcoin. Dogecoin. It makes the technology look like a circus for morons yet more coins come out every day and are backed by exchanges that represent the industry.”

Has bitcoin started the inexorable descent into the trough of disillusionment? If so, how can we tell?

Over the hill?

Visibility is often tied to media coverage.

Jerry Brito, who directs the technology policy program at the Mercatus Center at George Mason University, says that the story angles have changed, reducing the options for juicy media coverage.

“At one point, bitcoin and virtual currencies were a novel and interesting story. The sexier angles including Silk Road were there. Since the novelty has warn off and the bad actors are being driven out of the ecosystem, they have lost interest.”

When you’re heading down into the trough of disillusionment, a technology’s failures – such as Mt Gox’s collapse – are centre stage. It’s easy to write apocalyptic stories during this period. But, when the rate of embarrassing public implosions slows, these sexy headlines are harder to find.

Quantifying the amount of mainstream media coverage is beyond CoinDesk’s scope, but we can quantify Google searches, and they’re down. Querying trends on bitcoin as a topic, rather than search term, shows a strong spike in interest last April, followed by an even stronger increase at the end of last year.

Bitcoin Google searches over time

Someone on Quora suggested price as an alternative metric for tracking enthusiasm around bitcoin. The price fluctuations seem broadly correlated with Google search trends for bitcoin.

Bitcoin’s price over time (CoinDesk Bitcoin Price Index)

The price increased around the same time that the search volume rose last April. The searches tracked the price again at the end of the year. Sure enough, when the price fell in January, searches plummeted – and continue to fall. They seem to not just track the price, but react violently to it.

Which community?

All of these might be ways to measure the level of enthusiasm for bitcoin, but we may be missing something. One of the most telling things about the ‘waning enthusiasm’ Bitcoin Talk post is how the commenter references the bitcoin community.

That may be oversimplistic.

Long-time bitcoin entrepreneur Erik Voorhees, who last year sold SatoshiDice, points out that bitcoin has many voices:

“There are many groups, I’d probably categorize as follows: developers/tech enthusiasts, entrepreneurs, investors, observers (including the media), ‘hardcore bitcoiners’ and ‘softcore bitcoiners’. The former are those for whom bitcoin is a lifestyle. The latter are just those who enjoy using bitcoin sometimes.”

Referring to the “bitcoin community” is like referring to the web community, agrees Jeremy Allaire, CEO of Circle.

He focuses on one of bitcoin’s sub-communities that seems resolutely committed to bitcoin: people looking to build longer-term investments and services from it:

“I’m actually seeing the opposite of this thread – increasing levels of interest from business leaders, government, other entrepreneurs, investors.”

Many in that community, including Allaire, are building the foundations for online services and investments designed for longevity. Barry Silbert announced yesterday that he has 100,000 bitcoins in his investment trust, for example.

Venture capital firms are investing more, rather than less, in bitcoin, tripling the 2014 run rate over the total 2013 investment rate in short order, thanks to a flurry of investments.

But these are informed individuals, playing a long-term game. Bitcoin has been visible to these types for a long time. Many non-bitcoin users still haven’t heard of the digital currency – or think that it’s dead, following the collapse of Mt Gox. Are bitcoin advocates educating them quickly enough?

“By no means does the general public understand bitcoin, but they are surely closer to understanding than they were a year ago,” says Curtis Fenimore, a bitcoin activist who has been busy trying to spread the word.

Ultimately, media coverage of bitcoin, and sentiment about it on the forums, will fluctuate wildly, because both the mainstream media, and some of the people using it, are fickle.

Voorhees suggests that there are two broad types of enthusiasm:

“On one hand, you have the deep, long-run, ‘I’ve dedicated my life to bitcoin’-type enthusiasm. On the other hand, you have more fleeting, superficial ‘excitement of the moment’-type enthusiasm.”

You can measure the first by counting new bitcoin ventures and investments, he suggests, while the Google searches and mainstream media headlines denote the second.

Dilettantes, dabblers and those wanting to make a fast buck will run hot and cold when it comes to bitcoin, as positive and negative events occur. Mainstream media outlets will feed the fire while the headlines are there. People will say it’s dead, while others will predict the overthrow of the banking system. These are the normal activities that we come to expect as a disruptive currency moves along the path to maturity.

But, that’s the point. It isn’t so much the technology itself that reaches excessive highs and lows as it rolls relentlessly through the Gartner hype cycle; it’s the public opinion that fluctuates around it.

Rollercoaster image via Shutterstock