Bitcoin hits a billion dollars

Bitcoin, the virtual distributed currency, hit a market cap of 1 billion US dollars today.  The point at which this happened was when the price of a single Bitcoin hit $94.50.  Currently, the price on the largest exchange, MT.GOX, is slightly below that at $93.50.  There are roughly 11 million Bitcoins in circulation.

With the price of a Bitcoin at these record levels, it represents a growth in value of roughly 2400% from where it was a year ago.

Much of this increase has happened in a relatively short period of time.  In particular the prospects of the EU taking up to 40% of saver’s money held in Cypriot bank accounts has pushed people to invest in Bitcoin.  The online currency is also seeing interest from hedge funds looking to eek out growth during difficult financial times.

There are two things that will dictate the success of Bitcoin going forward.  The first is general usage.  At the moment Bitcoin is used almost exclusively to trade for other currencies, usually as a form of investment.  To succeed as a currency, it needs to sustain a certain volume, and the only realistic way to maintain that volume is to use Bitcoin for day-to-day purchases.  There is an increasing number of businesses accepting Bitcoin, but the number needs to explode over the next few years.

The other critical factor is stability.  Those close to Bitcoin are expecting a short-term adjustment in value.  Possibly when people calm down and regain trust in traditional Fiat currencies, possibly when it hits the magic/symbolic US$100 mark, possibly when the US and EU try to regulate it.  But it will happen.  The last time Bitcoin adjusted, it crashed.  Hard.  Dropping from $32 to less than $5.  When this happened, a hardcore few kept the currency going.  But as it stands there are far more laymen invested who won’t hold their nerve.  Times will become challenging at some point.