Volatility has been the prevalent word when it comes to describing how Bitcoin has traded over the last month or two. The digital currency had a meteoric rise to highs near $3,000 per Bitcoin and then quickly was sold back to about $2,000 per bitcoin representing a relatively immense pullback of about 33% over the course of a very short amount of time.
Of course, when we think about currency and forex we think about extremely small moves that are a couple of basis points here and there over the course of a week, so to see a currency whip around 33% in just two short weeks not only worries investors but adds fuel to the fire for those who are critical of bitcoin.
Those that don't believe in the long term possibility of the digital currency cite this volatility as a detraction from why Bitcoin may not be able to be used as a primary every day purchaser of products. To some extent, we actually agree with that analysis. Because there is only going to be a finite amount of Bitcoin produced, about 21 million, this lack of liquidity could easily lead to violent price swings in the future.
Of course, the fact that only so few Bitcoin have been produced will also, in our opinion, work splendidly in favor of those who own Bitcoin going forward. Because of the relatively limited finite nature of Bitcoin, if the currency is ever adopted by the mainstream, even if it is just adopted as a hedge and not an everyday currency, the limited number of BTC available should help continually drive the price of the currency up over the course of the long term.
With the price whipsawing back-and-forth, social media and financial media have purveyed and presented a case that makes it look as though there is real panic in the BTC market and that the price could continue to crash. Because the price advanced so quickly to $3,000, everybody automatically assumes that there is this bubble that is going to burst and those buying here for the long term will ultimately lose a large percentage of their investment.
We would like to take the other side of that argument and we have put our money where our mouth is, recently adding to our Bitcoin stash on the pullback from $3,000 to about $2,500. Our past Bitcoin articles have indicated that we believe long-term focused investors can find opportunity buying the dips and that is a strategy we have backed up through our actions.
This recent pullback isn't going to be any different from previous ones. We added to our position and we continue to think the long term picture for Bitcoin remains intact. With the currency recently being accepted as a currency in Japan and Russia now also considering digital currency is to be placed under government regulation we only think that the air of credibility around Bitcoin will continue to get stronger. As Bitcoin is realized not only as a method of conducting value transfers from one person to another, but also as a hedge against the central bank system, we expect the price to continue to appreciate.
Regulation remains a win/win scenario. In the event that governments continue to regulate Bitcoin it's going to lend credibility to the currency and as more people pour in, that'll drive the price higher. In the case where governments do not acknowledge it, Bitcoin will remain an important underground medium for transacting value that will not lose its appeal of being a currency that isn't entangled with government.
As we stated in our article encouraging people to "Buy One Bitcoin and Forget About It" (while BTC was $1,400) we may not ever get another chance to purchase what could be the world's first digital currency at a spot this early in its infancy ever again. Yes, there is no limit to the amount of digital currencies that can be produced. Is it likely that somebody else will produce a currency that is more innovative and can be transacted more often than bitcoin? The answer is yes. But, because Bitcoin was the original and because it is so early in the adoption cycle of this