Bitcoin has had a meteoric rise in the last few weeks following intensive press coverage and activity from investors and startups in the Bitcoin space. However, most of this activity is fueled by speculative actions on the value of Bitcoin. Practically none of it is by virtue of the actual use of Bitcoin as a medium of exchange. As I’ve written before, the primary beneficial use of Bitcoin is as a medium of exchange, not a store of value. The recent activity is reminiscent of the Dutch tulip mania of the early to mid 1600’s.
The easy of exchanging Bitcoin for fiat currency is the cause of this. As long as people can transfer in and out of the currency with ease, the tendency will be for people to hoard it because it’s value against other currencies will be more than it’s value as a medium of exchange. If the exchanges were shut down (voluntarily or by government action) then Bitcoin will shine and people will actually spend it and use it as it is meant to be used. Then it’s true “value” will be determined, not by some mythical exchange rate but by what people are actually willing to accept it for in exchange for the goods and services they produce.