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Bitcoin was the worst investment of 2014, but that's a good thing for Bitcoin

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The less it's seen as a speculative currency, the easier it will be for bitcoin to gain momentum as a technology

One year ago this month I wrote a piece saying bitcoin was too cheap for its own good. The point of that piece was that Bitcoin was suffering from massive swings in price, a volatility driven by speculators trying to get rich investing in Bitcoin, and bad press that would cause the price to plummet. In the year that followed Bitcoin has seen some big swings in price, but the general trend has been down from its highs of last winter. As Matt Phillips points at over at Quartz, viewed against other investments, bitcoin has been the "worst" performer of 2014, declining a whopping 52 percent against the US dollar.

That drop is actually not the worst performance of the year, as noted by the investor Paul Kedrofsky. If you were hoping to pocket a big profit buying bitcoin, however, it was still terrible news. But if you're more interested in the disruptive innovation that the blockchain technology behind bitcoin might enable, the price of each coin is actually immaterial. What matters most is that the currency stabilizes, avoiding massive changes in value that might scare off the merchants and consumers who have yet to adopt it. So the less attractive of an investment, the better. And as 2014 progressed, bitcoin has actually seen far fewer rapid, massive swings in price.

bitcoin volatility

Bitcoin, in the minds of many smart folks, is not a currency, but a protocol, more like TCP/IP, the bedrock of the internet. It enables an entirely new kind of interaction, a mechanism that is both centralized and decentralized at the same time, a platform that is completely anonymous and yet extremely rich in trust. For folks like that, who are building bitcoin startups or investing in them, the issue that was holding back the adoption of Bitcoin was volatility driven by speculators and the financial press. It could continue to be the worst performing investment class, and it's likely bitcoin will still boom as a sector for venture capital investment. What matter to them is that the number of transactions using bitcoin keep rising, and when viewed through that lens, 2014 was very healthy year.