The Bitcoin Collapse That Never Happened

After a tumultuous summer for Bitcoin, the digital currency's value has not only stabilized but, over the last month, increased. 

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After a tumultuous summer for Bitcoin, the digital currency's value has not only stabilized but, over the last month, increased. On a Sunday afternoon in June the price of a Bitcoin dropped from over $17 to pennies. Now, as Ars Technica's Timothy B. Lee pointed out, the price rose above $4 for the first time in months. The currency looked doomed back in June. But, looks like it's not over yet.

Bitcoin hasn't just surpassed some arbitrary price point. It has had a stable month, steadily increasing throughout December, as the chart via below shows.

Keep in mind, this is all after a crazy volatile year and a half. With a value below 14 cents in April 2010, the currency achieved "dollar parity" by February 2011. In June it had soared to about $27. And then it thudded down to pennies. In that context, Lee explains what makes this rise impressive:

The original run-up in prices could easily be explained as a speculative bubble, and the subsequent decline as the popping of that bubble. But if that were the whole story, then the value of Bitcoins should have continued to decline as more and more people lost confidence in the currency. That hasn't been happening. 

There are plenty of reasons Bitcoin doesn't make sense as a currency: It's complicated; has no real value behind it; it hasn't proven stable; it's not widely accepted; it's hard to keep track of. No, thanks.

But, Bitcoin might have a place in our money-exchange system, after-all. It might be a niche place, as Lee suggests. He theorizes that the Internet currency is actually a "meta-currency" that allows for low-cost and regulation free money-transfers and might serve to replace Western Union. For example, someone who doesn't want the government to notice might prefer Bitcoin transfers over a traditional route. But there are some that think Bitcoin has a real future. Some of "the more serious members of the community" are working to keep it alive, reports Wired's Benjamin Wallace. Mt. Gox, a Tokyo based Bitcoin exchange side, is developing "point-of-sale" hardware -- places to check out. And, two Colorado Bitcoiners have launched Bitcoin Deals, an Internet store that deals in Bitcoins and sells "375,000 products."

Of course, none of these things fix the persistent problems. And, skepticism outside of the cyber-currency's community hasn't let up. Stefan Brands, a cryptography researcher and e-money expert, told Wallace he thought it was a "pyramid scheme" designed only to reward early adopters. Really, with this currency's track record, it could all crash back down tomorrow.

This article is from the archive of our partner The Wire.