Bitcoin: $100 by the End of 2013?

Wow, what a week. Reddit took the leap and is now accepting Bitcoin payments, the market took a 20% dip and bounced back like it never happened, and the general buzz around Bitcoin is nothing like the community has ever seen before.

The Bitcoin market cap is just moments away from hitting $300,000,000, and the chart is starting to make the June 2011 bubble look like a speed bump:

Bitcoin Market Cap (Chart courtesy of blockchain.info)

Looking at Bitcoin mining, the first ASICs from Avalon and ASICMiner are now online, and at some point next week Butterfly Labs will most likely be shipping their long-awaited product to the lucky miners who threw down their money last summer.

The number of Bitcoin projects on the go is impossible to measure, as most developers are rather secretive, but I can quote one anonymous source as saying, "if I told you how many major projects I was aware of, your mind would explode." I'm not sure if that means four to six, or ten to twenty, but there are definitely a lot of enthusiastic developers mashing away at keyboards as we speak.

So, with that in mind, let's take a look at the future, shall we?

The Next Six Months (Original chart courtesy of bitcoinx.com)

What I've done here is added six months onto this chart (click for full-size), showing where I believe the exchange rate and mining difficulty will take us over the next half-year. Predicting mining difficulty at this scale was rather easy; it's going to go up, and quickly. A difficulty of seven million will easily be achieved by the first couple weeks of March, as thousands of chips are sent out by Butterfly Labs and the second batches from the other manufacturers begin coming online.

Predicting exchange rate is a different monster altogether. With the Reddit adoption, in essence an acknowledgement from a large corporation that accepting Bitcoins is risk-free, the way has been paved for other major businesses to sit down with the likes of BitPay, Coinbase, WalletBit, and OKPAY, and add Bitcoin to their list of acceptable forms of payment.

It used to be that accepting Bitcoin literally meant having a Bitcoin wallet and receiving Bitcoins. Now it's obvious, almost mainstream obvious, that you can pay a third party a nominal fee to convert those Bitcoins to fiat currency and, literally overnight, expand your customer base to the global market.

Now we're at a $300,000,000 market cap. As we approach a billion dollars and beyond, Bitcoin will become even more liquid, allowing the payment processors to lower their fees and increase the pressure on thre three archaic stalwarts: PayPal, Visa, and MasterCard.

So where do we go from here? How much is global, fraud-free, peer-to-peer, open-source digital cash worth to the global economy? 300 million dollars? A billion dollars? Ten billion? At ten billion dollars, a Bitcoin is worth $476 at full dilution (21 million coins). There are several niche publicly traded technology companies with market caps in the ten billion dollar range, but we're talking about a technology, Bitcoin, that could literally revolutionize global banking. What are the odds of Bitcoin being worth 15% of ten billion within six months? I would say that outcome is quite likely, and that's all my chart is showing.

The current "spike" to $28 is the equivalent to the spike to $10 that occurred before the June 2011 bubble. Assuming this is a similar "calm before the storm" situation, I predict we'll see mid-fifties by mid to late March, followed by a consolidation in the $40 range, and then an aggressive steady climb toward $100 by the end of 2013.

Again, I can't predict the future; nobody can, but at this point I can't see why such a useful technology that has already survived three years of endless attacks unscathed, will not receive massive adoption in the very near future, at first by business, and then subsequently by consumer. Most importantly, Bitcoin is a concept that is starting to go viral, and when things go viral on the Internet, they move quickly.

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'Bitcoin User Not Affected' Meme

Inspired by this Reddit post, looks like a new meme is starting to take hold:

Perhaps this is the answer to the Ben Bernanke meme:

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Bitcoin Pizzas: Formerly 10,000 BTC, Now 1.82 BTC.

Actual Bitcoin trade data from 2010: BitcoinMarket.com

It's a thing of legend: the infamous Bitcoin Pizzas.

In May of 2010, Bitcoins were trading for approximately $0.0045 a piece (that's 222 Bitcoins for a dollar), and an individual named laszlo on the bitcointalk forums had an idea: he wanted to buy himself two warm, tasty pizzas for 10,000 Bitcoins. Little did he know that he was about to make a purchase that would land him in Bitcoin's history books.

Laszlo ended up successfully completing the deal, and, from the pictures, the pizzas sure looked delicious. Not only did he purchase two pizzas for that price, but he kept the offer open to others and likely purchased additional pizzas for the same enormous quantity of Bitcoins.

Actual pizzas purchased by laszlo for 10,000 BTC

Almost three years later, laszlo's 10,000 Bitcoins would have been worth $270,160, enough for 20,000 pizzas. But hindsight is 20/20, so who are we to judge?

These days, buying pizza with Bitcoins is a little less expensive, at least in Bitcoin terms. A new site, Pizzaforcoins.com, has launched a service that allows you to buy pizza for Bitcoins from Domino's Pizza, and as of today, Pizza Hut as well. A medium pizza from Pizza Hut with five toppings will run you 0.94 Bitcoins based on current exchange rates.

One has to wonder how much 10,000 Bitcoins will be worth three years from today. Some people think that  $1000 per Bitcoin or $10 million is not unrealistic. In that case, even today's 0.94 Bitcoin pizza will seem ridiculously expensive, but don't let that hold you back; it is pizza after all, and pizza is delicious.

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Reddit Chooses to Accept Bitcoin for Payment

After a tireless campaign from Bitcoin supporters, Reddit has finally made the decision to accept Bitcoin as payment for Reddit Gold.

Reddit, the 135th most visited site globally and the 61st most visited site by Internet users in the United States, joins Wordpress as one of the largest web businesses to adopt the increasingly popular digital currency. Reddit has chosen to use Coinbase as their Bitcoin payment processor. Coinbase recently made headlines for having conducted $1,000,000 in Bitcoin transactions in one month.

Seemingly in response to the announcement, Bitcoin moved higher, trading at $27.50, a new 52-week high and a sharp bounce off of yesterday's $21.70 low.

Reddit is a subsidiary of the Advance Publications corporation, the 46th largest private company in the United States. As a result, this move by Reddit could be interpreted as an indication that large mainstream businesses are ready to adopt and accept Bitcoin as a real and useful currency.

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Six Bullish Facts About Bitcoin

There are many Bitcoin enthusiasts who, through the fall from $32 to $2/BTC and the slow climb back up, kept the faith and fought off the critics and the pessimists. Now, their faith is bearing fruit.

Here are six reasons to be excited about Bitcoin at the moment:

• There are 289 users on r/bitcoin right now. It was only a couple of weeks ago that seeing more than a hundred users was rare.

• Coinbase, which recently reported over $1,000,000 in Bitcoin transactions in the last month, has stopped taking buy orders for today, as they've "reached the limit."

• The Bitcoin market cap has just hit $275,000,000, a new record, and there's no sign of it letting up.

• A major US-facing online gambling site is in the process of implementing Bitcoin.

• You can buy pizza with Bitcoins, as reported by the BBC. Yes, the BBC.

• Membership on the Silk Road forums is growing even faster than on the bitcointalk forums.

• Wordpress, the 22nd most visited site on the entire Internet, accepts Bitcoin.

Expect to see additional major announcements in the coming months, as Bitcoin finally goes mainstream.

Edit: oops, I guess that was seven.

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Bitcoin Hits $25/BTC, Shows no Resistance to Further Increases

It's been all of two weeks since Bitcoin cracked through the psychologically important $20 USD barrier, and now $25 has been breached.

At this time, the order book shows no resistance to the price moving rapidly higher. One can only surmise that this is a setup for an even larger upwards move, followed by an inevitable crash to lower support.

It would not surprise me to see a rapid move past the previous all-time high of $32, perhaps to as high as $40-$45, before a correction takes us back down to the mid twenties for a rest. One thing is for certain: the next week of trading will be exciting.

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The Ghosts of Bitcoin's Past

As Bitcoin makes the transition from awkward caterpillar to beautiful butterfly, I believe it's important that we take a moment to reflect on the personalities that have contributed greatly to Bitcoin's colourful history. You could say that the existence of these individuals was always a positive sign, as they would never have been drawn to Bitcoin if it hadn't had any value. Unfortunately, scammers scammed, and con-artists conned, and their most susceptible prey were often those most willing to trust.

Ironically, some of the greatest Bitcoin projects and partnerships developed because intelligent, well-meaning individuals were willing to put their faith in people they had never met, yet it was this willingness to trust that so often led to the swindling and theft that devastated so many wallets.

Now then, let's jump in the Bitcoin time-machine, and take things back, waaaaaay back, to 2011, when some of the most notorious members of the community first made their appearance.

Bruce Wagner

In April of 2011, Bruce Wagner embarked on a mission to inform the world about Bitcoin. His primary medium of choice was a drawn-out awkward TV format that often spent an hour covering topics worthy of five-minutes discussion. His viewers were subjected to Skype interviews over Bruce's consistently unreliable Internet connection, often giving the audience the impression that his guests were calling in from other planets.

While ignoring and cutting off, if not verbally abusing his co-host, Manny Mena, Bruce struggled to comprehend the techno-babble emanating from the legitimately brilliant minds of the founding fathers of some of Bitcoin's most successful projects.

Though it first began as a painful-to-watch yet innocent attempt to contribute to the Bitcoin community, over time Bruce Wagner's show was discovered to be a facade covering up a shadier history. His insistence on holding a Bitcoin conference in Pattaya, Thailand, a notorious haven for child molesters, combined with the discovery of a previous charge of mortgage fraud, led to his eventual downfall. While he was frequently suspected of being tied to the MyBitcoin scam, it was never proven, not that additional proof was needed to secure his position in the annals of Bitcoin's history.

Never passing up an opportunity for comedy, a member of the community threw together this wonderfully edited version of the famous episode of The Bitcoin Show where Bruce apologized to his friends and family who had deposited their Bitcoins with MyBitcoin, based on his recommendations.

The last episode of the show "aired" on February 24th, 2012 and his blog was last updated on June 8th, 2012, though the ghost of Bruce Wagner continues to tweet on a regular basis.

Zhou Tong

In September of 2011, at the ripe-old age of 16, Zhou Tong launched Bitcoinica, Bitcoin's first successful leveraged-trading site. After eight months of flawless operation that made Zhou Tong and his business partners rather wealthy, the site fell victim, in May of 2012, to a theft of over 38,000 Bitcoins, leaving the site permanently crippled.

A subsequent theft of 40,000 Bitcoins occurred in July of 2012, though the kind-hearted thief returned the Bitcoins to the victims; Bitcoinica's creditors.

An article on Forbes speculated that, before fate struck a mighty blow to the heart of the Singaporean boy-genius, the site was raking in on the order of $50,000/month. 

Zhou Tong still describes himself as independently wealthy, likely due to the fortunate (for him) fact that he sold Bitcoinica to the Bitcoin Consultancy / Intersango before all of this went down. In the end, Zhou Tong was found to be an innocent bystander as the walls of his vision crumbled around him, and he has since sworn himself off of Bitcoin, continuing to pursue other projects for the betterment of society.

Pirateat40

And we finish the story of our three ghosts with the most notorious of them all; a Pirate, at 40. Promising endless returns to those who had the fortitude to invest with him, he managed to lure in a large percentage of those looking to invest their Bitcoins. 

Though the 7% weekly returns that were promised by the "Bitcoin Savings & Trust" were obviously outrageous and unsustainable to anyone looking in from the outside, he managed to keep the ponzi scheme going long enough to convince even the skeptics that perhaps there was a method to his madness. 

By the time the curtain fell, a good portion of the funds listed on the Global Bitcoin Stock Exchange were deriving their returns from investments in the Pirate's bank. When all was said and done, an estimated 500,000 Bitcoins ($10,000,000 USD at current exchange rates) were missing. The Pirate has yet to be found, but you can rest assured that the hunt continues to locate the man behind the largest theft in Bitcoin history.

One thing is certain, from these events and encounters, the Bitcoin community has grown smarter, and a little more street-savvy; or at least one would hope. Is there another ghost lurking among us, ready to float off into the pages of Bitcoin history wearing sheets stained with the blood of a thousand days destroyed? Perhaps, but at least for the moment, we sleep, soundly.

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