This week in bitcoin: Investment in bitcoin is up as the price goes down

This week’s bitcoin review looks back at a week that saw not only the lowest price for bitcoin yet in 2014, but also the biggest funding round in bitcoin history.

It’s boom and bust for bitcoin

If you look at the market charts alone, bitcoin has had a terrible, horrible, no good, very bad couple of months — and this week was the worst of it. The price of bitcoin fell to its lowest point in 2014 on Sunday, hitting $290.83. For comparison, its highest point this year was $950, meaning a bitcoin is only worth 30 percent of what it was valued in January.

The price drop on Sunday was allegedly caused by an early adopter who sold 24,580 BTC on the BitStamp exchange, raking in about $7,374,000, according to a report from Pantera Capital. The order book was to sell 30,000 coins at $300 (below where the price was in the mid-300s that day), which spooked investors, so down the market came. The unknown person who did this is now referred to as “BearWhale” in the bitcoin community, for their bear-ish attempt to bring the price down with a super-sized quantity of coins. Since the initial panic, bitcoin enthusiasts started buying up the cheap bitcoin and pushed the price up another $100 to reach a high of $390 this week, before falling once again.

But, this is bitcoin, which means it’s more than just a currency and a store of value. Investors are taking note.

This week, software and wallet company Blockchain raised the largest funding round in bitcoin history, taking in $30.5 million in its Series A round. BitFury, a bitcoin mining company, also announced its $20 million round Thursday — capping off a big week for bitcoin investments.

Although the price dropped 39.6 percent between Q2 and Q3, venture capital investment is up 41 percent between the quarters, according to CoinDesk’s State of Bitcoin report released this week. Including the BitFury and Blockchain numbers (which are from the beginning of Q4), total VC investment in cryptocurrency startups stands at $317 million. Let’s just hope they didn’t take those investments in BTC over USD.

The market this week

The market dipped to the lowest price of 2014 this week, hitting $290 before rebounding back up to $380 by the end of the week. The price has since fallen a bit again where it currently stands at $356 as of 2:30pm PT. Bitcoin enthusiasts may appreciate the rise in price, but to those outside of bitcoin, this week was just a reminder of how volatile this nascent cryptocurrency can be.
bitcoin price 1010
For background on why we’re using Coindesk’s Bitcoin Price Index, see the note at the bottom of the post. 

Here are some of the best reads from around the web this week:

  • In Time, Walter Isaacson asked an important question (at least in my view) about bitcoin: could it be the thing to save journalism and the arts? He suggested that tipping services like ChangeTip could be applied to journalistic or musical works. There are some technical hurdles (and ethical ones for journalists — please don’t tip me), but it could be a monetized way of “liking” an artist, song or article.
  • As bitcoin grows, shouldn’t the transaction volume on the blockchain grow too? While the number has actually remained stagnant, as Quartz pointed out, the market is becoming more reminiscent of Wall Street as more transactions are happening “off the chain.”
  • There’s always been potential for bitcoin in Argentina, but Venezuela may be taking up the mantle first. Reuters reported that Venezuelans are turning to bitcoin for their online transactions.
  • Why do bitcoin fans not believe in bad news? Time cited “confirmation bias” as the reason why the crowds at Reddit’s bitcoin subreddit were cheering amid the price crash.
  • Famed economist Paul Krugman wrote in the New York Times about “The Long Cryptocon” of bitcoin. It was an article the bitcoin community did not take kindly too, with the comment number almost matching the article length and other news sources taking Krugman to task.

Bitcoin in 2014

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The history of bitcoin’s price

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A note on our data: We use CoinDesk’s Bitcoin Price Index to obtain both a historical and current reflection of the Bitcoin market. The BPI is an average of the four Bitcoin exchanges which meet their criteria: Bitstamp, BTC-e, LakeBTC and Bitfinex. To see the criteria for inclusion or for price updates by the minute, visit CoinDesk. Since the market never closes, the “closing price” as noted in the graphics is based on end of day Greenwich Mean Time (GMT) or British Summer Time (BST). 

Disclosure: I currently own a very small amount of bitcoin for product testing purposes.