Why Is It That VCs Love The Bitcoin Market – Part 2
Continuing from the earlier post, what are the conditions in the Bitcoin market? Get a detailed view of this currency market.
How Do We Get There?
Requiring a 2 to 2.5 order of magnitude increase over current levels is all of these market sizing analyses where some metrics have shown a 1 to 1.5x order of magnitude increase that doesn’t stretch the imagination thinking that it might be possible. The question is how and it is impossible to get to those sizes on illicit usage only as you can’t get there just on speculation. To become mainstream the bitcoins usage has to get these through merchant preference as of the lower transaction costs. Appealing to industries with low net margins, or those with high transaction costs, these industries are that pioneer in Bitcoin acceptance.
The known fact is that merchants won’t switch to Bitcoin as for lower transaction costs if the tradeoff is the volatility of exchange rates as long as their costs come in fiat currency, which they will want to switch out of Bitcoin and into fiat immediately taken payment since they won’t want to bear currency risk. Requiring deep liquidity in the exchanges, these are where professional traders come in. They have already started entering the market.
In the case of the current volatility in the Bitcoin exchange rate reduced in the future, merchants are willing to hold bitcoins for longer periods as also make payments in bitcoins. Bitcoin may become mainstream in another way in countries where the currency, as well as the financial system, are already more volatile than Bitcoin.
Requiring bright-line regulatory compliance by all elements of the Bitcoin ecosystem brings mainstream adoption crucial where guidance on virtual currencies from FinCEN caused Bitcoin prices to go up. The Bitcoin as it gets closer to the US regulatory umbrella they move closer to legitimacy were rules and the ones that will follow increases the overhead costs of players in the space that is a small price to pay for legitimacy.
What Does It Mean For Startups?
Bitcoin has some attractive characteristics as not all big markets are opportunities for startups as it is disruptive to the current system. The dilemma of innovators keeps the big players in payments out of the market thereby for a long time fearing to cannibalize their current attractive margins as one day the competition will surely come.
Regarding, the key questions of any startup are: what is the competitive advantage and how to defend against large late entrant. Whereas for exchange, liquidity ifs the barrier to entry as there have been examples as new entrants cracked open market place businesses where it is hard. The wallet and merchant services are less clear with barriers to entry.
It is worth mentioning the risks associated with Bitcoin as well. It happened that the six biggest hacking, theft and fraud incidents involved Bitcoin exchanges, wallets or investment vehicles resulting in a total of 1.2 million bitcoins being stolen out of a total11 million bitcoins in existence. It points out that more than 10 percent of all Bitcoin is been stolen and doesn’t include many smaller thefts and losses from individual wallets. Whereas one of another wallet service was shut down after suffering an attack and given this environment, the Bitcoin startups cannot remain bootstrapped for long with a need to raise better security and proactive regulatory functions.
By these scenarios, Bitcoin prices need to go up by 100x or more as the case is and they may be just buying Bitcoin as a better investment rather than putting money into a Bitcoin startup as it won’t be anywhere near as much fun.
The Concluding Words
While wallets are essential for every Bitcoin holder, it is necessary to choose the secure and safe wallets as opposed to the general public believing in every wallet. The reason why VCs choose the Bitcoin market is their robust underlying technology giving them a stable and secure Bitcoin market. While Bitcoin wallets are brought forward by many of the startups, it is also ready in that here is always one that may fail to provide a secure network. This, in turn, leads to the loss of confidence of Bitcoin miners in the credibility of markets. The most important stance to be taken is to provide trustworthy technology out of the most evolving tech industry to make sure the need of the Bitcoin developers is surely met. Miners need wallets, exchanges and payment options to interact in the VC world. This is why the world is demanding more from this where the market is booming with all kinds of cryptocurrencies and Bitcoin being the most prominent amongst them.
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